Cytosine methylation is a repressive, epigenetically propagated DNA modification. Although patterns of DNA methylation seem tightly regulated in mammals, it is unclear how these are specified and to what extent this process entails genetic or epigenetic regulation. To dissect the role of the underlying DNA sequence, we sequentially inserted over 50 different DNA elements into the same genomic locus in mouse stem cells. Promoter sequences of approximately 1,000 bp autonomously recapitulated correct DNA methylation in pluripotent cells. Moreover, they supported proper de novo methylation during differentiation. Truncation analysis revealed that this regulatory potential is contained within small methylation-determining regions (MDRs). MDRs can mediate both hypomethylation and de novo methylation in cis, and their activity depends on developmental state, motifs for DNA-binding factors and a critical CpG density. These results demonstrate that proximal sequence elements are both necessary and sufficient for regulating DNA methylation and reveal basic constraints of this regulation.