DNA in differentiated somatic cells has a fixed pattern of methylation, which is faithfully copied after replication. By contrast, the methylation patterns of many tissue-specific and some housekeeping genes are altered during normal development. This modification of DNA methylation in the embryo has also been observed in transgenic mice and in transfection experiments. Here we report the fate in mice of an in vitro-methylated adenine phosphoribosyltransferase transgene. The entire 5' CpG island region became demethylated, whereas the 3' end of the gene remained modified and was even methylated de novo at additional sites. Transfection experiments in vitro show that the demethylation is rapid, is specific for embryonic cell-types and affects a variety of different CpG island sequences. This suggests that gene sequences can be recognized in the early embryo and imprinted with the correct methylation pattern through a combination of demethylation and de novo methylation.