Eukaryotic transcription factors (TFs) are key determinants of gene activity, yet they bind only a fraction of their corresponding DNA sequence motifs in any given cell type. Chromatin has the potential to restrict accessibility of binding sites; however, in which context chromatin states are instructive for TF binding remains mainly unknown. To explore the contribution of DNA methylation to constrained TF binding, we mapped DNase-I-hypersensitive sites in murine stem cells in the presence and absence of DNA methylation. Methylation-restricted sites are enriched for TF motifs containing CpGs, especially for those of NRF1. In fact, the TF NRF1 occupies several thousand additional sites in the unmethylated genome, resulting in increased transcription. Restoring de novo methyltransferase activity initiates remethylation at these sites and outcompetes NRF1 binding. This suggests that binding of DNA-methylation-sensitive TFs relies on additional determinants to induce local hypomethylation. In support of this model, removal of neighbouring motifs in cis or of a TF in trans causes local hypermethylation and subsequent loss of NRF1 binding. This competition between DNA methylation and TFs in vivo reveals a case of cooperativity between TFs that acts indirectly via DNA methylation. Methylation removal by methylation-insensitive factors enables occupancy of methylation-sensitive factors, a principle that rationalizes hypomethylation of regulatory regions.