Aberrant hypermethylation of CpG islands (CGI) in human tumors occurs predominantly at repressed genes in the host tissue, but the preceding events driving this phenomenon are poorly understood. In this study, we temporally tracked epigenetic and transcriptomic perturbations that occur in a mouse model of liver carcinogenesis. Hypermethylated CGI events in the model were predicted by enrichment of the DNA modification 5-hydroxymethylcytosine (5hmC) and the histone H3 modification H3K27me3 at silenced promoters in the host tissue. During cancer progression, selected CGIs underwent hypo-hydroxymethylation prior to hypermethylation, while retaining H3K27me3. In livers from mice deficient in Tet1, a tumor suppressor involved in cytosine demethylation, we observed a similar loss of promoter core 5hmC, suggesting that reduced Tet1 activity at CGI may contribute to epigenetic dysregulation during hepatocarcinogenesis. Consistent with this possibility, mouse liver tumors exhibited reduced Tet1 protein levels. Similar to humans, DNA methylation changes at CGI in mice did not appear to be direct drivers of hepatocellular carcinoma progression, rather, dynamic changes in H3K27me3 promoter deposition correlated strongly with tumor-specific activation and repression of transcription. Overall, our results suggest that loss of promoter-associated 5hmC in liver tumors licenses reprograming of DNA methylation at silent CGI during progression. Cancer Res; 76(10); 3097-108. ©2016 AACR.