In this study we examine the mechanisms of dynamic DNA methylation of the p15^ink4b tumor suppressor gene. Using conventional ChIP and ChiPseq, we identify the p15^ink4b promoter as a target for the ZNF217 oncogene, the CoREST complex, and DNMT3A. Treatment of cells with TGF-β triggers active demethylation involving loss of ZNF217/CoREST/DNMT3A and the corecruitment of SMAD2/3, CBP, and the DNA glycosylase TDG. Knockdown of TDG, or its functional homolog MBD4, prevents TGF-β-dependent demethylation of p15^ink4b. DNA immunoprecipitation of 5mC and 5hmC indicates that 5mC undergoes conversion to 5hmC prior to activation of p15^ink4b. Remarkably, overexpression of ZNF217 inhibits active demethylation and expression of the p15^ink4b gene by preventing recruitment of SMAD2/3 and TDG. These findings suggest that active demethylation is essential for regulating a subset of TGF-β-dependent genes. Importantly, disruption of active demethylation by the ZNF217 oncogene may be a paradigm for other oncogenic signals on DNA methylation dynamics.