TET1 is a 5-methylcytosine dioxygenase and its DNA demethylating activity has been implicated in pluripotency and reprogramming. However, the precise role of TET1 in DNA methylation regulation outside of developmental reprogramming is still unclear. Here, we show that overexpression of the TET1 catalytic domain but not full length TET1 (TET1-FL) induces massive global DNA demethylation in differentiated cells. Genome-wide mapping reveals that 5-hydroxymethylcytosine production by TET1-FL is inhibited as DNA methylation increases, which can be explained by the preferential binding of TET1-FL to unmethylated CpG islands (CGIs) through its CXXC domain. TET1-FL specifically accumulates 5-hydroxymethylcytosine at the edges of hypomethylated CGIs, while knockdown of endogenous TET1 induces methylation spreading from methylated edges into hypomethylated CGIs. We also found that gene expression changes after TET1-FL overexpression are relatively small and independent of its dioxygenase function. Thus, our results identify TET1 as a maintenance DNA demethylase that does not purposely decrease methylation levels, but specifically prevents aberrant methylation spreading into CGIs in differentiated cells.