A large body of evidence demonstrates that DNA methylation plays a role in gene regulation in animal cells. Not only is there a correlation between gene transcription and undermethylation, but also transfection experiments clearly show that the presence of methyl moieties inhibits gene expression in vivo. Furthermore, gene activation can be induced by treatment of cells with 5-azacytidine, a potent demethylating agent. Methylation appears to influence gene expression by affecting the interactions with DNA of both chromatin proteins and specific transcription factors. Although methylation patterns are very stable in somatic cells, the early embryo is characterized by large alterations in DNA modification. New methodologies are now becoming available for studying methylation at this stage and in the germ line. During development, tissue-specific genes undergo demethylation in their tissue of expression. In tissue culture cells this process is highly specific and appears to involve an active mechanism which takes place in the absence of DNA replication. The X chromosome undergoes inactivation during development; this is accompanied by de novo methylation, which appears necessary to stably maintain its silent state. As opposed to the programmed changes in DNA methylation which occur in vivo, immortalized tissue culture cells demonstrate alterations in DNA modification which take place over a long time scale and which appear to be the result of selective pressures present during the growth of these cells in culture.