Evidence for active DNA demethylation in vertebrates is accumulating, but the mechanisms and enzymes remain unclear. Using zebrafish embryos we provide evidence for 5-methylcytosine (5-meC) removal in vivo via the coupling of a 5-meC deaminase (AID, which converts 5-meC to thymine) and a G:T mismatch-specific thymine glycosylase (Mbd4). The injection of methylated DNA into embryos induced a potent DNA demethylation activity, which was attenuated by depletion of AID or the non enzymatic factor Gadd45. Remarkably, overexpression of the deaminase/glycosylase pair AID/Mbd4 in vivo caused demethylation of the bulk genome and injected methylated DNA fragments, likely involving a G:T intermediate. Furthermore, AID or Mbd4 knockdown caused the remethylation of a set of common genes. Finally, Gadd45 promoted demethylation and enhanced functional interactions between deaminase/glycosylase pairs. Our results provide evidence for a coupled mechanism of 5-meC demethylation, whereby AID deaminates 5-meC, followed by thymine base excision by Mbd4, promoted by Gadd45.