Programmed methylation and demethylation of regulatory sequences has been proposed to play a central role in vertebrate development. We report here that the methylation status of the 5' regions of a panel of tissue-specific genes could not be correlated with expression in tissues of fetal and newborn mice. Genes reported to be regulated by reversible methylation were not expressed ectopically or precociously in Dnmt1-deficient mouse embryos under conditions where demethylation caused biallelic expression of imprinted genes and activated transcription of endogenous retroviruses of the IAP class. These and other data suggest that the numerous published expression-methylation correlations may have described not a cause but a consequence of transcriptional activation. A model is proposed under which cytosine methylation represents a biochemical specialization of large genomes that participates in specialized biological functions such as allele-specific gene expression and the heritable transcriptional silencing of parasitic sequence elements, whereas cellular differentiation is controlled by conserved regulatory networks that do not depend on covalent modification of the genome.