Mammalian somatic cells can be directly reprogrammed into induced pluripotent stem cells (iPSCs) by introducing defined sets of transcription factors. Somatic cell reprogramming involves epigenomic reconfiguration, conferring iPSCs with characteristics similar to embryonic stem cells (ESCs). Human ESCs (hESCs) contain 5-hydroxymethylcytosine (5hmC), which is generated through the oxidation of 5-methylcytosine by the TET enzyme family. Here we show that 5hmC levels increase significantly during reprogramming to human iPSCs mainly owing to TET1 activation, and this hydroxymethylation change is critical for optimal epigenetic reprogramming, but does not compromise primed pluripotency. Compared with hESCs, we find that iPSCs tend to form large-scale (100 kb-1.3 Mb) aberrant reprogramming hotspots in subtelomeric regions, most of which exhibit incomplete hydroxymethylation on CG sites. Strikingly, these 5hmC aberrant hotspots largely coincide (~80%) with aberrant iPSC-ESC non-CG methylation regions. Our results suggest that TET1-mediated 5hmC modification could contribute to the epigenetic variation of iPSCs and iPSC-hESC differences.