Both mouse and human embryonic stem cells can be differentiated in vitro to produce a variety of somatic cell types. Using a new developmental tracing approach, we show that these cells are subject to massive aberrant CpG island de novo methylation that is exacerbated by differentiation in vitro. Bioinformatics analysis indicates that there are two distinct forms of abnormal de novo methylation, global as opposed to targeted, and in each case the resulting pattern is determined by molecular rules correlated with local pre-existing histone modification profiles. Since much of the abnormal methylation generated in vitro appears to be stably maintained, this modification may inhibit normal differentiation and could predispose to cancer if cells are used for replacement therapy. Excess CpG island methylation is also observed in normal placenta, suggesting that this process may be governed by an inherent program.