DNA methylation acts as an epigenetic modification in vertebrate DNA. Recently it has become clear that the DNA and histone lysine methylation systems are highly interrelated and rely mechanistically on each other for normal chromatin function in vivo. Here we examine some of the functional links between these systems, with a particular focus on several recent discoveries suggesting how lysine methylation may help to target DNA methylation during development, and vice versa. In addition, the emerging role of non-methylated DNA found in CpG islands in defining histone lysine methylation profiles at gene regulatory elements will be discussed in the context of gene regulation. This article is part of a Special Issue entitled: Methylation: A Multifaceted Modification — looking at transcription and beyond.