Transposable elements are major components of plant genomes. Their activity seems to be epigenetically regulated by gene silencing systems. Here we report epigenetic variation in the retrotransposon Tos17 activity in rice varieties. Of the two copies of Tos17 present in chromosome 7 (Tos17 (chr.7)) and chromosome 10 (Tos17 (chr.10)), Tos17 (chr.7) is strongly activated by tissue culture in most varieties including Nipponbare except for Moritawase, despite the identity of the DNA sequences in Moritawase and Nipponbare. Tos17 (chr.7) activity correlated with its methylation status, and Tos17 (chr.7 )in Moritawase was heavily methylated and activated by treatment of 5-azacytidine (5-azaC), a DNA methylation inhibitor. Although the original copies of Tos17 are methylated to some extent in all varieties examined, the transposed copies in calli mostly are not methylated. When plants were regenerated from calli, the degree of methylation of the Tos17 DNA increased gradually with the growth of plants, and a significant progress of DNA methylation occurred in the next generation after a completed reproductive cycle. With increasing DNA methylation, the transcription of transposed and original Tos17 copies driven by its own as well as by a flanking gene promoter were suppressed. We conclude that Tos17 DNA methylation controls the transpositional activity of Tos17, and modulates the activity of neighboring genes. Based on the analysis of the inactive Tos17 (chr.10), we propose that another mechanism, called transcriptional interference, is involved in the control of Tos17 activity.