The methylation of cytosine and subsequent oxidation constitutes a fundamental epigenetic modification in mammalian genomes, and its abnormalities are intimately coupled to various pathogenic processes including cancer development. Enzymes of the Ten-eleven translocation (TET) family catalyze the stepwise oxidation of 5-methylcytosine in DNA to 5-hydroxymethylcytosine and further oxidation products. These oxidized 5-methylcytosine derivatives represent intermediates in the reversal of cytosine methylation, and also serve as stable epigenetic modifications that exert distinctive regulatory roles. It is becoming increasingly obvious that TET proteins and their catalytic products are key regulators of embryonic development, stem cell functions and lineage specification. Over the past several years, the function of TET proteins as a barrier between normal and malignant states has been extensively investigated. Dysregulation of TET protein expression or function is commonly observed in a wide range of cancers. Notably, TET loss-of-function is causally related to the onset and progression of hematologic malignancy in vivo. In this review, we focus on recent advances in the mechanistic understanding of DNA methylation-demethylation dynamics, and their potential regulatory functions in cellular differentiation and oncogenic transformation.