Chromosome territory (CT) organization and chromatin condensation have been linked to gene expression. Although individual genes can be transcribed from inside CTs, some regions that have constitutively high expression or are coordinately activated loop out from CTs and decondense. The relationship between epigenetic marks, such as DNA methylation, and higher-order chromatin structures is largely unexplored. DNMT3B mutations in immunodeficiency centromeric instability facial anomalies (ICF) syndrome result in loss of DNA methylation at particular sites, including CpG islands on the inactive X chromosome (Xi). This allows the specific effects of DNA methylation on CTs to be examined. Using fluorescence in situ hybridization, we reveal a differential organization of the human pseudoautosomal region (PAR)2 between the CTs of the X and Y in normal males and the active X (Xa) and the Xi in females. There is also a more condensed chromatin structure on Xi compared with Xa in this region. PAR2 genes are relocalized toward the outside of the Y and Xi CTs in ICF, and on the Xi, we show that this can extend to genes distant from the site of DNA hypomethylation itself. This reorganization is not simply a reflection of the transcriptional activation of the relocalized genes. This report of altered CT organization in a human genetic disease illustrates that DNA hypomethylation at restricted sites in the genome can lead to more extensive changes in nuclear organization away from the original site of epigenetic change.