Pluripotent stem cells (PSCs) occupy a spectrum of reversible molecular states ranging from a naive ground-state in 2i, to metastable embryonic stem cells (ESCs) in serum, to lineage-primed epiblast stem cells (EpiSCs). To investigate the role of DNA methylation (5mC) across distinct pluripotent states, we mapped genome-wide 5mC and 5-hydroxymethycytosine (5hmC) in multiple PSCs. Ground-state ESCs exhibit an altered distribution of 5mC and 5hmC at regulatory elements and dramatically lower absolute levels relative to ESCs in serum. By contrast, EpiSCs exhibit increased promoter 5mC coupled with reduced 5hmC, which contributes to their developmental restriction. Switch to 2i triggers rapid onset of both the ground-state gene expression program and global DNA demethylation. Mechanistically, repression of de novo methylases by PRDM14 drives DNA demethylation at slow kinetics, whereas TET1/TET2-mediated 5hmC conversion enhances both the rate and extent of hypomethylation. These processes thus act synergistically during transition to ground-state pluripotency to promote a robust hypomethylated state.