Genomewide DNA hypomethylation is a consistent finding in human tumors, but the importance of this change for human tumorigenesis remains an open question. We have previously reported that mice carrying a hypomorphic allele for the maintenance DNA methyltransferase (Dnmt1(chip/-)) are hypomethylated and develop thymic lymphomas, demonstrating that genomewide DNA hypomethylation can induce tumors. Hypomethylated cells exhibit inherent chromosomal instability, which is revealed in the lymphomas as a consistent trisomy of chromosome 15. We now report another aspect of the molecular basis for tumor development upon DNA hypomethylation. Seven out of 16 hypomethylation-induced lymphomas were found to contain an intracisternal A particle (IAP) somatic insertion in the middle of the Notch1 genomic locus, leading to generation of an oncogenic form of Notch1 in the tumors. This finding suggests that the molecular basis for hypomethylation-induced tumors in this model involves chromosomal instability events accompanied by activation of endogenous retroviral elements. Our findings validate the proposed role of DNA methylation in suppression of transposable elements in mammalian cells and demonstrate the importance of DNA methylation for normal cell function as well as the potential consequences of spontaneously occurring or chemically induced DNA hypomethylation.