Differentiation of hematopoietic stem cells to red cells requires coordinated expression of numerous erythroid genes and is characterized by nuclear condensation and extrusion during terminal development. To understand the regulatory mechanisms governing these widespread phenotypic changes, we conducted a high resolution methylomic and transcriptomic analysis of six major stages of human erythroid differentiation. We observed widespread epigenetic differences between early and late stages of erythropoiesis with progressive loss of methylation being the dominant change during differentiation. Gene bodies, intergenic regions, and CpG shores were preferentially demethylated during erythropoiesis. Epigenetic changes at transcription factor binding sites correlated significantly with changes in gene expression and were enriched for binding motifs for SCL, MYB, GATA, and other factors not previously implicated in erythropoiesis. Demethylation at gene promoters was associated with increased expression of genes, whereas epigenetic changes at gene bodies correlated inversely with gene expression. Important gene networks encoding erythrocyte membrane proteins, surface receptors, and heme synthesis proteins were found to be regulated by DNA methylation. Furthermore, integrative analysis enabled us to identify novel, potential regulatory areas of the genome as evident by epigenetic changes in a predicted PU.1 binding site in intron 1 of the GATA1 gene. This intronic site was found to be conserved across species and was validated to be a novel PU.1 binding site by quantitative ChIP in erythroid cells. Altogether, our study provides a comprehensive analysis of methylomic and transcriptomic changes during erythroid differentiation and demonstrates that human terminal erythropoiesis is surprisingly associated with hypomethylation of the genome.