TET1 protein is reported to suppress cancer invasion and metastasis in prostate and breast cancer while EZH2, a polycomb group protein, has been identified as an oncogene in many types of cancers including gastric cancer. Here we report that there is an inverse relation of the expression pattern of TET1 and EZH2 in both normal gastric mucosa and gastric cancer. In gastric mucosa, EZH2 is selectively expressed in the proliferating neck cells while TET1 and 5-hydroxymethyl-cytosine (5-hmc) exhibit very low expression in the neck cells. In contrast, TET1 and 5-hmc expression is high in gastric glandular epithelium while EZH2 expression is absent in this cell population. On the other hand, in proliferating Ki67-positive gastric cancer cells, EZH2 is highly expressed while TET1 and 5-hmc expression is significantly down-regulated. When the mouse homologue of human TET1 protein Tet1 is overexpressed in a gastric cancer cell line MGC-803, we observed the dramatically down-regulation of EZH2 in one-third of the Tet1 overexpressed cells. In addition, Tet1 overexpressing cells also lost the H3K27 trimethylation mark and the cell proliferation protein Ki67. Furthermore, Tet1 overexpression induced p53 tumor suppressor protein. The increase of p53 protein level is accompanied by the phosphorylation of p53 by activated DNA-PK. Together, these results suggested a mechanism by which TET1 suppresses cancer formation by coupling DNA demethylation with DNA-PK activation of p53 and suppression of oncogenic protein EZH2. Conversely, loss of TET1 and 5-hmc expression might contribute to EZH2 up-regulation during gastric cancer development.