To better understand inter-individual variation in sensitivity of DNA methylation (DNAm) to immune activity, we characterized effects of inflammatory stimuli on primary monocyte DNAm (n= 190). We find that monocyte DNAm is site-dependently sensitive to lipopolysaccharide (LPS), with LPS-induced demethylation occurring following hydroxymethylation. We identify 7,359 high-confidence immune-modulated CpGs (imCpGs) that differ in genomic localization and transcription factor usage according to whether they represent a gain or loss in DNAm. Demethylated imCpGs are profoundly enriched for enhancers and colocalize to genes enriched for disease associations, especially cancer. DNAm is age associated, and we find that 24-h LPS exposure triggers approximately 6months of gain in epigenetic age, directly linking epigenetic aging with innate immune activity. By integrating LPS-induced changes in DNAm with genetic variation, we identify 234 imCpGs under local genetic control. Exploring shared causal loci between LPS-induced DNAm responses and human disease traits highlights examples of disease-associated loci that modulate imCpG formation.