BACKGROUND & AIMS: Aberrant DNA methylation is frequent in colorectal cancer (CRC), but underlying mechanisms and pathologic consequences are poorly understood. METHODS: We disrupted active DNA demethylation genes Tet1 and/or Tdg from ApcMin mice and characterized the methylome and transcriptome of colonic adenomas. Data were compared to human colonic adenocarcinomas (COAD) in The Cancer Genome Atlas. RESULTS: There were increased numbers of small intestinal adenomas in ApcMin mice expressing the TdgN151A allele, whereas Tet1-deficient and Tet1/TdgN151A-double heterozygous ApcMin colonic adenomas were larger with features of erosion and invasion. We detected reduction in global DNA hypomethylation in colonic adenomas from Tet1- and Tdg-mutant ApcMin mice and hypermethylation of CpG islands in Tet1-mutant ApcMin adenomas. Up-regulation of inflammatory, immune, and interferon response genes was present in Tet1- and Tdg-mutant colonic adenomas compared to control ApcMin adenomas. This up-regulation was also seen in murine colonic organoids and human CRC lines infected with lentiviruses expressing TET1 or TDG short hairpin RNA. A 127-gene inflammatory signature separated colonic adenocarcinomas into 4 groups, closely aligned with their microsatellite or chromosomal instability and characterized by different levels of DNA methylation and DNMT1 expression that anticorrelated with TET1 expression. Tumors with the CpG island methylator phenotype (CIMP) had concerted high DNMT1/low TET1 expression. TET1 or TDG knockdown in CRC lines enhanced killing by natural killer cells. CONCLUSIONS: Our findings reveal a novel epigenetic regulation, linked to the type of genomic instability, by which TET1/TDG-mediated DNA demethylation decreases methylation levels and inflammatory/interferon/immune responses. CIMP in CRC is triggered by an imbalance of methylating activities over demethylating activities. These mice represent a model of CIMP CRC.