Although DNA methylation and transcriptional repression are generally associated, a causal role for DNA methylation in silencing of retroviral vectors has not been established. The newer generation murine stem cell virus retroviral vector (MSCV) lacks many of the repressive cis-acting DNA sequences identified in Moloney murine leukemia virus but remains sensitive to transcriptional silencing in various cell types. To determine the contribution of cytosine methylation to MSCV silencing, we mutated CpG dinucleotides located in the MSCV long terminal repeat (LTR) that are clustered in the U3 region and directly spanning the transcription start site in the R region. Effects of the CpG mutations on MSCV silencing were assessed in murine embryonic stem cells. An analysis of numerous clonal proviral integrants showed that mutation of CpGs in both clusters eliminated proviral integrants that were completely silenced. Variegated expression was shown to represent a substantial component of intraclonal silencing and was independent of the presence of CpGs in the LTR. Treatment of transduced cells with 5-azadeoxycytidine delayed establishment of the silenced state but had only a modest effect on expression of some proviral integrants at late times post-transduction. These results are direct evidence for a causal contribution of DNA methylation in the LTR to MSCV silencing and define the promoter region CpGs as a repressive element in embryonic stem cells. Furthermore, distinct mechanisms are suggested for establishment and maintenance of the silenced proviral state.