Epigenetics refers to a variety of processes that have heritable effects on gene expression programs without changes in DNA sequence. Key players in epigenetic control are chemical modifications to DNA, histone, and non-histone chromosomal proteins, which establish a complex regulatory network that controls genome function. Methylation of DNA at the fifth position of cytosine in CpG dinucleotides (5-methylcytosine, 5mC), which is carried out by DNA methyltransferases, is commonly associated with gene silencing. However, high resolution mapping of DNA methylation has revealed that 5mC is enriched in exonic nucleosomes and at intron-exon junctions, suggesting a role of DNA methylation in the relationship between elongation and RNA splicing. Recent studies have increased our knowledge of another modification of DNA, 5-hydroxymethylcytosine (5hmC), which is a product of the ten-eleven translocation (TET) proteins converting 5mC to 5hmC. In this review, we will highlight current studies on the role of 5mC and 5hmC in regulating gene expression (using some aspects of brain development as examples). Further the roles of these modifications in detection of pathological states (type 2 diabetes, Rett syndrome, fetal alcohol spectrum disorders and teratogen exposure) will be discussed.