DNA methylation is one of the best-characterized epigenetic modifications. Although the enzymes that catalyse DNA methylation have been characterized, enzymes responsible for demethylation have been elusive. A recent study indicates that the human TET1 protein could catalyse the conversion of 5-methylcytosine (5mC) of DNA to 5-hydroxymethylcytosine (5hmC), raising the possibility that DNA demethylation may be a Tet1-mediated process. Here we extend this study by demonstrating that all three mouse Tet proteins (Tet1, Tet2 and Tet3) can also catalyse a similar reaction. Tet1 has an important role in mouse embryonic stem (ES) cell maintenance through maintaining the expression of Nanog in ES cells. Downregulation of Nanog via Tet1 knockdown correlates with methylation of the Nanog promoter, supporting a role for Tet1 in regulating DNA methylation status. Furthermore, knockdown of Tet1 in pre-implantation embryos results in a bias towards trophectoderm differentiation. Thus, our studies not only uncover the enzymatic activity of the Tet proteins, but also demonstrate a role for Tet1 in ES cell maintenance and inner cell mass cell specification.