A diet lacking folic acid and choline and low in methionine (folate/methyl deficient diet, FMD diet) fed to rats is known to produce preneoplastic nodules (PNNs) after 36 weeks and hepatocellular carcinomas (tumors) after 54 weeks. FMD diet-induced tumors exhibit global hypomethylation and regional hypermethylation. Restriction landmark genome scanning analysis with methylation-sensitive enzyme NotI (RLGS-M) of genomic DNA isolated from control livers, PNNs and tumor tissues was performed to identify the genes that are differentially methylated or amplified during multistage hepatocarcinogenesis. Out of the 1250 genes analysed, 2 to 5 genes were methylated in the PNNs, whereas 5 to 45 genes were partially or completely methylated in the tumors. This analysis also showed amplification of 3 to 12 genes in the primary tumors. As a first step towards identifying the genes methylated in the PNNs and primary hepatomas, we generated a rat NotI-EcoRV genomic library in the pBluescriptKS vector. Here, we describe identification of one methylated and downregulated gene as the rat protein tyrosine phosphatase receptor type O (PTPRO) and one amplified gene as rat C-MYC. Methylation of PTPRO at the NotI site located immediate upstream of the trancription start site in the PNNs and tumors, and amplification of C-MYC gene in the tumors were confirmed by Southern blot analyses. Bisulfite genomic sequencing of the CpG island encompassing exon 1 of the PTPRO gene revealed dense methylation in the PNNs and tumors, whereas it was methylation free in the livers of animals on normal diet. Reverse transcription-polymerase chain reaction (RT-PCR) analysis showed significant decrease in the expression of PTPRO in the tumors and in a transplanted rat hepatoma. The expression of PTPRO mRNA in the transplanted hepatoma after demethylation with 5-azacytidine, a potent inhibitor of DNA methyltransferases, further confirmed the role of methylation in PTPRO gene expression. These results demonstrate alteration in methylation profile and expression of specific genes during tumor progression in the livers of rats in response to folate/methyl deficiency, and further implicate the potential role of PTPRO as a novel growth regulatory gene at least in the hepatocellular carcinomas.