Cytosine methylation silences transposable elements in plants, vertebrates, and fungi but also regulates gene expression. Plant methylation is catalyzed by three families of enzymes, each with a preferred sequence context: CG, CHG (H = A, C, or T), and CHH, with CHH methylation targeted by the RNAi pathway. Arabidopsis thaliana endosperm, a placenta-like tissue that nourishes the embryo, is globally hypomethylated in the CG context while retaining high non-CG methylation. Global methylation dynamics in seeds of cereal crops that provide the bulk of human nutrition remain unknown. Here, we show that rice endosperm DNA is hypomethylated in all sequence contexts. Non-CG methylation is reduced evenly across the genome, whereas CG hypomethylation is localized. CHH methylation of small transposable elements is increased in embryos, suggesting that endosperm demethylation enhances transposon silencing. Genes preferentially expressed in endosperm, including those coding for major storage proteins and starch synthesizing enzymes, are frequently hypomethylated in endosperm, indicating that DNA methylation is a crucial regulator of rice endosperm biogenesis. Our data show that genome-wide reshaping of seed DNA methylation is conserved among angiosperms and has a profound effect on gene expression in cereal crops.