The formation of differentiated cell types from pluripotent progenitors involves epigenetic regulation of gene expression. DNA hydroxymethylation results from the enzymatic oxidation of 5-methylcytosine (5-mC) to 5-hydroxymethylcytosine (5-hmC) by the ten-eleven translocation (TET) 5-mC dioxygenase enzymes. Previous work has mapped changes in 5-mC during differentiation of intestinal stem cells. However, whether or not 5-hmC regulates colonocyte differentiation is unknown. Here we show that 5-hmC regulates gene expression during colonocyte differentiation and controls gene expression in human colon cancers. Genome-wide profiling of 5-hmC during in vitro colonic differentiation demonstrated that 5-hmC is gained at highly expressed and induced genes and is associated with intestinal transcription factor binding sites, including those for HNF4A and CDX2. TET1 induction occurred during differentiation, and TET1 knockdown altered gene expression and inhibited barrier formation of colonocytes. We find that the 5-hmC distribution in primary human colonocytes parallels the distribution found in differentiated cells in vitro, and that gene-specific 5-hmC changes in human colon cancers are directly correlated with changes in gene expression. Our results support a model in which 5-hmC regulates differentiation of adult human intestine and 5-hmC alterations contribute to the disrupted gene expression in colon cancer.