Inorganic arsenic, a human carcinogen, is enzymatically methylated for detoxication, consuming S-adenosyl-methionine (SAM) in the process. The fact that DNA methyltransferases (MeTases) require this same methyl donor suggests a role for methylation in arsenic carcinogenesis. Here we test the hypothesis that arsenic-induced initiation results from DNA hypomethylation caused by continuous methyl depletion. The hypothesis was tested by first inducing transformation in a rat liver epithelial cell line by chronic exposure to low levels of arsenic, as confirmed by the development of highly aggressive, malignant tumors after inoculation of cells into Nude mice. Global DNA hypomethylation occurred concurrently with malignant transformation and in the presence of depressed levels of S-adenosyl-methionine. Arsenic-induced DNA hypomethylation was a function of dose and exposure duration, and remained constant even after withdrawal of arsenic. Hyperexpressibility of the MT gene, a gene for which expression is clearly controlled by DNA methylation, was also detected in transformed cells. Acute arsenic or arsenic at nontransforming levels did not induce global hypomethylation of DNA. Whereas transcription of DNA MeTase was elevated, the MeTase enzymatic activity was reduced with arsenic transformation. Taken together, these results indicate arsenic can act as a carcinogen by inducing DNA hypomethylation, which in turn facilitates aberrant gene expression, and they constitute a tenable theory of mechanism in arsenic carcinogenesis.