Oxidative stress plays a central role in the development of diabetic retinopathy, and in the pathogenesis of this blinding disease, activation of NADPH oxidase 2 (Nox2)-mediated cytosolic reactive oxygen species (ROS) production precedes mitochondrial damage. The multicomponent cytosolic Nox2 has an obligatory component, Ras-related C3 botulinum toxin substrate 1 (Rac1); in diabetes, Rac1 is functionally and transcriptionally active. Diabetes also facilitates many epigenetic modifications, and activates both DNA methylating (Dnmts) and hydroxymethylating (Tets) enzymes. Our aim was to investigate the role of epigenetics in Rac1 regulation in diabetes. Using human retinal endothelial cells, exposed to high glucose, 5-methyl cytosine (5mC) and 5-hydroxy methyl cytosine (5hmC) levels, and binding of Dnmt and Tets were quantified at the Rac1 promoter. The effect of inhibition of Dnmts/Tets (pharmacological inhibitors or short interfering RNA siRNA) on glucose-induced activation of Rac1-ROS production was evaluated. Results were confirmed in retinal microvessels from streptozotocin-induced diabetic mice receiving intravitreally Dnmt1-siRNA. Despite high glucose-induced increased binding of Dnmt1, 5mC levels remained subnormal at Rac1 promoter. But, at the same site, 5hmC levels and transcription factor nuclear factor (NF)-kB binding were increased. Inhibition of Dnmts/Tets prevented increase in 5hmC and NF-kB binding, and attenuated Rac1 activation. Similarly, in mouse retinal microvessels, Dnmt1-siRNA ameliorated diabetes-induced increase in Rac1 transcripts and activity, and decreased ROS levels. Thus, despite Dnmts activation, concomitant increase in Tets rapidly hydroxymethylates 5mC, allowing NF-κB to bind and activate Rac1. These results imply a critical role of an active DNA methylation in cytosolic ROS regulation in the development of diabetic retinopathy.