Throughout development, cell fate decisions are converted into epigenetic information that determines cellular identity. Covalent histone modifications are heritable epigenetic marks and are hypothesized to play a central role in this process. In this report, we assess the concordance of histone H3 lysine 4 dimethylation (H3K4me2) and trimethylation (H3K4me3) on a genome-wide scale in erythroid development by analyzing pluripotent, multipotent, and unipotent cell types. Although H3K4me2 and H3K4me3 are concordant at most genes, multipotential hematopoietic cells have a subset of genes that are differentially methylated (H3K4me2+/me3-). These genes are transcriptionally silent, highly enriched in lineage-specific hematopoietic genes, and uniquely susceptible to differentiation-induced H3K4 demethylation. Self-renewing embryonic stem cells, which restrict H3K4 methylation to genes that contain CpG islands (CGIs), lack H3K4me2+/me3- genes. These data reveal distinct epigenetic regulation of CGI and non-CGI genes during development and indicate an interactive relationship between DNA sequence and differential H3K4 methylation in lineage-specific differentiation.