DNA methylation is a major epigenetic modification of vertebrate genomes that is mostly associated with transcriptional repression. During embryogenesis, DNA methylation together with other epigenetic factors plays an essential role in selecting and maintaining cell identity. Recent technological advances are now allowing for the exploration of this mark at unprecedented resolution. This has resulted in a wealth of studies describing the developmental roles of DNA methylation in various vertebrate model systems. It is now evident that in certain contexts DNA methylation can act as a key regulator of cell identity establishment, whereas in many other cases the quantity of DNA methylation will merely reflect other upstream regulatory changes. For example, a number of studies have indicated that DNA methylation might be dispensable for pluripotency stages of embryonic development. Nevertheless, targeted deposition and removal of DNA methylation by DNMTs and TET proteins, respectively, appears to be required for vertebrate gastrulation. Here we review the roles of DNA methylation in the establishment and maintenance of cell identity during development, with a special emphasis on insights obtained from in vivo studies.