DNA methylation is a hallmark of transcriptional silencing, yet transcription has been reported at the centromere. To address this apparent paradox, we employed a fully sequence-defined ectopic human centromere (or neocentromere) to investigate the relationship between DNA methylation and transcription. We used sodium bisulfite PCR and sequencing to determine the methylation status of 2,041 CpG dinucleotides distributed across a 6.76-Mbp chromosomal region containing a neocentromere. These CpG dinucleotides were associated with conventional and nonconventional CpG islands. We found an overall hypermethylation of the neocentric DNA at nonconventional CpG islands that we designated as CpG islets and CpG orphans. The observed hypermethylation was consistent with the presence of a presumed transcriptionally silent chromatin state at the neocentromere. Within this neocentric chromatin, specific sites of active transcription and the centromeric chromatin boundary are defined by DNA hypomethylation. Our data demonstrate, for the first time to our knowledge, a correlation between DNA methylation and centromere formation in mammals, and that transcription and "chromatin-boundary activity" are permissible at the centromere through the selective hypomethylation of pockets of sequences without compromising the overall silent chromatin state and function of the centromere.