We have investigated the role of DNA methylation in the initiation and maintenance of silenced chromatin in somatic mammalian cells. We found that a mutated transgene, in which all the CpG dinucleotides have been eliminated, underwent transcriptional silencing to the same extent as the unmodified transgene. These observations demonstrate that DNA methylation is not required for silencing. The silenced CpG-free transgene exhibited all the features of heterochromatin, including silencing of transcriptional activity, delayed DNA replication, lack of histone H3 and H4 acetylation, lack of H3-K4 methylation, and enrichment in tri-methyl-H3-K9. In contrast, when we tested for transgene reactivation using a Cre recombinase-mediated inversion assay, we observed a marked difference between a CpG-free and an unmodified transgene: the CpG-free transgene resumed transcription and did not exhibit markers of heterochromatin whereas the unmodified transgene remained silenced. These data indicate that methylation of CpG residues conferred epigenetic memory in this system. These results also suggest that replication delay, lack of histone H3 and H4 acetylation, H3-K4 methylation, and enrichment in tri-methyl-H3-K9 are not sufficient to confer epigenetic memory. We propose that DNA methylation within transgenes serves as an intrinsic epigenetic memory to permanently silence transgenes and prevent their reactivation.