Dynamic changes in DNA methylation and demethylation reprogram transcriptional outputs to instruct lineage specification during development. Here, we applied an integrative epigenomic approach to unveil DNA (hydroxy) methylation dynamics representing major endodermal lineage intermediates during pancreatic differentiation of human embryonic stem cells (hESCs). We found that 5-hydroxymethylcytosine (5hmC) marks genomic regions to be demethylated in the descendent lineage, thus reshaping the DNA methylation landscapes during pancreatic lineage progression. DNA hydroxymethylation is positively correlated with enhancer activities and chromatin accessibility, as well as the selective binding of lineage-specific pioneer transcription factors, during pancreatic differentiation. We further discovered enrichment of hydroxymethylated regions (termed '5hmC-rim') at the boundaries of large hypomethylated functional genomic regions, including super-enhancer, DNA methylation canyon and broad-H3K4me3 peaks. We speculate that '5hmC-rim' might safeguard low levels of cytosine methylation at these regions. Our comprehensive analysis highlights the importance of dynamic changes of epigenetic landscapes in driving pancreatic differentiation of hESC.