About half of all genes have a CpG island surrounding the promoter and transcription start site. Most promoter CpG islands are normally unmethylated in all tissues, irrespective of the expression level of the associated gene. Establishment of the appropriate patterns of DNA methylation in the genome is essential for normal development and patterns of gene expression. Aberrant methylation of CpG islands and silencing of the associated genes is frequently observed in cancer. One gene with a 5′-CpG island is cytoplasmic β-actin, which is an abundantly expressed protein and a major component of microfilaments. Inserting a βgeo cassette into the 3′-untranslated region of β-actin gene led to widespread but not ubiquitous lacZ expression in mice heterozygous for the modified β-actin allele. Surprisingly, embryos homozygous for this insertion died at mid-gestation. The modified β-actin allele was expressed in undifferentiated embryonic stem cells but was turned off as these cells differentiate in vitro and in vivo. We demonstrate that the insertion affects the maintenance of the methylation status of the CpG island of the modified β-actin allele in differentiated but not in undifferentiated embryonic cells. These data suggest that there is a two-step process to defining a CpG island, requiring both embryonic establishment and a signal that maintains the CpG island in differentiated cells. Furthermore, they indicate that features built into the CpG island are not sufficient to direct CpG island maintenance during differentiation.