SummaryTransgene‐induced promoter or enhancer methylation clearly retards gene activity. While exonic methylation of genes is frequently observed in the RNAi process, only sporadic evidence has demonstrated its definitive role in gene suppression. Here, we report the isolation of a transcriptionally suppressed epi‐allele of the Arabidopsis thaliana phytochrome A gene (PHYA) termed phyA′ that shows methylation only in symmetric CG sites resident in exonic regions. These exonic modifications confer a strong phyA mutant phenotype, characterized by elongated hypocotyls in seedlings grown under continuous far‐red light. De‐methylation of phyA′ in the DNA methyl transferase I (met1) mutant background increased PHYA expression and restored the wild‐type phenotype, confirming the pivotal role of exonic CG methylation in maintaining the altered epigenetic state. PHYA epimutation was apparently induced by a transgene locus; however, it is stably maintained following segregation. Chromatin immunoprecipitation assays revealed association with dimethyl histone H3 lysine 9 (H3K9me2), a heterochromatic marker, within the phyA′ coding region. Therefore, transgene‐induced exonic methylation can lead to chromatin alteration that affects gene expression, most likely through reduction in the transcription rate.