DNA becomes demethylated when F9 mouse embryonal carcinoma cells differentiate into parietal endoderm. DNA methyltransferase (DNA-MTase) activity decreased by 50% during 1 week of differentiation. The level of DNA-MTase mRNA was also diminished accordingly, but the transcription rate of the DNA-MTase gene measured by run-on transcription was essentially unchanged, indicating regulation of DNA-MTase expression at a posttranscriptional step. The decline of DNA-MTase mRNA paralleled that of histone H3 mRNA in accord with the notion that DNA-MTase is preferentially expressed in the S phase of the cell cycle. Since DNA-MTase expression decreases in parallel with DNA synthesis, DNA demethylation during differentiation of F9 cells appears not to be due to limited expression of DNA-MTase. However, the plasmid pAFP7000CAT, alpha-fetoprotein (AFP), which is strongly de novo methylated when transfected into F9 stem cells became only weakly methylated after transfection into the F9 parietal endoderm derivative P1, indicating that the activity of DNA-MTase within parietal endoderm cells is more strongly diminished than is apparent from measurements of mRNA amounts and of overall DNA-MTase activity in vitro. The discrepancy between DNA-MTase expression and its actual activity within the cell indicates the existence of a novel mechanism controlling the activity of DNA-MTase.