Arsenic compounds are known human carcinogens but have proven equivocal in animal testing. The methylation of arsenic is a key aspect of its metabolism and consumption of the cellular methyl group donor, S-adenosyl-methionine (SAM), occurs concurrently with this metabolism. The fact that DNA methyltransferases (MeTases) require this same methyl group donor suggests a role for DNA hypomethylation in arsenic carcinogenesis. We tested the hypothesis that arsenic-induced cell transformation results from DNA hypomethylation caused by continuous methyl depletion due to chronic exposure to arsenic, and aberrant gene expression facilitated by the inheritable DNA methylation status. The hypothesis was tested by first inducing transformation in a rat liver epithelial cell line by chronic exposure to low-levels of arsenic, as confirmed by the development of highly aggressive, malignant tumors after inoculation of cells into Nude mice. Global DNA hypomethylation occurred concurrently with malignant transformation and in the presence of depressed levels of SAM. Arsenic-induced DNA hypomethylation was a function of dose and exposure duration, and remained constant even after withdrawal of arsenic. Consistent with hypomethylation as the means of transformation, activation of the oncogene c-myc was detected. Activation of c-myc often occurs during hepatocarcinogenesis and can induce transformation without mutation by simple overexpression. Hyperexpressibility of the MT gene, a gene for which expression is clearly controlled by DNA methylation, was also detected in transformed cells. Acute arsenic or arsenic at non-transforming levels did not induce global hypomethylation of DNA or activate c-myc. While transcription of DNA MeTase was elevated, the MeTase enzymatic activity was reduced with arsenic transformation. Taken together, these results indicate chronic, low levels of arsenic can act as a carcinogen by inducing genomic DNA hypomethylation, which facilitates aberrant oncogene expression, and they constitute the first tenable theory of mechanism in arsenic carcinogenesis.