Enzymes catalysing the methylation of the 5-position of cytosine (mC) have essential roles in regulating gene expression and maintaining cellular identity. Recently, TET1 was found to hydroxylate the methyl group of mC, converting it to 5-hydroxymethyl cytosine (hmC). Here we show that TET1 binds throughout the genome of embryonic stem cells, with the majority of binding sites located at transcription start sites (TSSs) of CpG-rich promoters and within genes. The hmC modification is found in gene bodies and in contrast to mC is also enriched at CpG-rich TSSs. We provide evidence further that TET1 has a role in transcriptional repression. TET1 binds a significant proportion of Polycomb group target genes. Furthermore, TET1 associates and colocalizes with the SIN3A co-repressor complex. We propose that TET1 fine-tunes transcription, opposes aberrant DNA methylation at CpG-rich sequences and thereby contributes to the regulation of DNA methylation fidelity.