Hypermethylation of the promoters of tumour suppressor genes represses transcription of these genes, conferring growth advantages to cancer cells. How these changes arise is poorly understood. Here we show that the activity of oxygen-dependent ten-eleven translocation (TET) enzymes is reduced by tumour hypoxia in human and mouse cells. TET enzymes catalyse DNA demethylation through 5-methylcytosine oxidation. This reduction in activity occurs independently of hypoxia-associated alterations in TET expression, proliferation, metabolism, hypoxia-inducible factor activity or reactive oxygen species, and depends directly on oxygen shortage. Hypoxia-induced loss of TET activity increases hypermethylation at gene promoters in vitro. In patients, tumour suppressor gene promoters are markedly more methylated in hypoxic tumour tissue, independent of proliferation, stromal cell infiltration and tumour characteristics. Our data suggest that up to half of hypermethylation events are due to hypoxia, with these events conferring a selective advantage. Accordingly, increased hypoxia in mouse breast tumours increases hypermethylation, while restoration of tumour oxygenation abrogates this effect. Tumour hypoxia therefore acts as a novel regulator of DNA methylation.