Inactivation of the transforming growth factor β (TGFβ)-signaling pathway and gene silencing through hypermethylation of promoter CpG islands are two frequent alterations in human and experimental cancers. Here we report that nonneoplastic TGFβ1−/− keratinocyte cell lines exhibit increased sensitivity to cell killing by alkylating agents, and this is due to lack of expression of the DNA repair enzyme<i>O</i> <sup>6</sup>-methylguanine DNA methyltransferase (MGMT). In TGFβ1−/− but not TGFβ1+/− cell lines, the CpG dinucleotides in the MGMT promoter are hypermethylated, as measured by restriction enzyme analysis and methylation specific polymerase chain reaction. In one unstable TGFβ1+/− cell line, loss of the wild type TGFβ1 allele correlates with the appearance of methylation in the MGMT promoter. Bisulfite sequencing shows that in the KO3 TGFβ1−/− cell line nearly all of the 28 CpG sites in the MGMT promoter 475 base pairs upstream of the start site of transcription are methylated, whereas most are unmethylated in the H1 TGFβ1+/− line. Treatment of the TGFβ1−/− cell lines with 5-azacytidine causes reexpression of MGMT mRNA and demethylation of CpG islands in the promoter. Analysis of the time course of methylation using methylation-specific polymerase chain reaction shows a lack of methylation in primary TGFβ1−/− keratinocytes and increasing methylation with passage number of immortalized clones. Subcloning of early passage clones reveals a remarkable heterogeneity and instability of the methylation state in the TGFβ1−/− keratinocytes. Thus, the TGFβ1−/− genotype does not directly regulate MGMT methylation but predisposes cells to immortalization-associated MGMT hypermethylation.