Cytosine hydroxymethylation (5hmC) in mammalian DNA is the product of oxidation of methylated cytosines (5mC) by Ten-Eleven-Translocation (TET) enzymes. While it has been shown that the TETs influence 5mC metabolism, pluripotency and differentiation during early embryonic development, the functional relationship between gene expression and 5hmC in adult (somatic) stem cell differentiation is still unknown. Here we report that 5hmC levels undergo highly dynamic changes during adult stem cell differentiation from intestinal progenitors to differentiated intestinal epithelium. We profiled 5hmC and gene activity in purified mouse intestinal progenitors and differentiated progeny to identify 43425 differentially hydroxymethylated regions and 5325 differentially expressed genes. These differentially marked regions showed both losses and gains of 5hmC after differentiation, despite lower global levels of 5hmC in progenitor cells. In progenitors, 5hmC did not correlate with gene transcript levels, however, upon differentiation the global increase in 5hmC content showed an overall positive correlation with gene expression level as well as prominent associations with histone modifications that typify active genes and enhancer elements. Our data support a gene regulatory role for 5hmC that is predominant over its role in controlling DNA methylation states.