Cells of a multicellular organism are genetically homogeneous but structurally and functionally heterogeneous owing to the differential expression of genes. Many of these differences in gene expression arise during development and are subsequently retained through mitosis. Stable alterations of this kind are said to be 'epigenetic', because they are heritable in the short term but do not involve mutations of the DNA itself. Research over the past few years has focused on two molecular mechanisms that mediate epigenetic phenomena: DNA methylation and histone modifications. Here, we review advances in the understanding of the mechanism and role of DNA methylation in biological processes. Epigenetic effects by means of DNA methylation have an important role in development but can also arise stochastically as animals age. Identification of proteins that mediate these effects has provided insight into this complex process and diseases that occur when it is perturbed. External influences on epigenetic processes are seen in the effects of diet on long-term diseases such as cancer. Thus, epigenetic mechanisms seem to allow an organism to respond to the environment through changes in gene expression. The extent to which environmental effects can provoke epigenetic responses represents an exciting area of future research.