DNA methylation is tightly regulated throughout mammalian development, and altered DNA methylation patterns are a general hallmark of cancer. The methylcytosine dioxygenase TET2 is frequently mutated in hematological disorders, including acute myeloid leukemia (AML), and has been suggested to protect CG dinucleotide (CpG) islands and promoters from aberrant DNA methylation. In this study, we present a novel Tet2-dependent leukemia mouse model that closely recapitulates gene expression profiles and hallmarks of human AML1-ETO-induced AML. Using this model, we show that the primary effect of Tet2 loss in preleukemic hematopoietic cells is progressive and widespread DNA hypermethylation affecting up to 25% of active enhancer elements. In contrast, CpG island and promoter methylation does not change in a Tet2-dependent manner but increases relative to population doublings. We confirmed this specific enhancer hypermethylation phenotype in human AML patients with TET2 mutations. Analysis of immediate gene expression changes reveals rapid deregulation of a large number of genes implicated in tumorigenesis, including many down-regulated tumor suppressor genes. Hence, we propose that TET2 prevents leukemic transformation by protecting enhancers from aberrant DNA methylation and that it is the combined silencing of several tumor suppressor genes in TET2 mutated hematopoietic cells that contributes to increased stem cell proliferation and leukemogenesis.