We report that homology-directed repair of a DNA double-strand break within a single copy Green Fluorescent Protein (GFP) gene in HeLa cells alters the methylation pattern at the site of recombination. DNA methyl transferase (DNMT)1, DNMT3a and two proteins that regulate methylation, Np95 and GADD45A, are recruited to the site of repair and are responsible for selective methylation of the promoter-distal segment of the repaired DNA. The initial methylation pattern of the locus is modified in a transcription-dependent fashion during the 15-20 days following repair, at which time no further changes in the methylation pattern occur. The variation in DNA modification generates stable clones with wide ranges of GFP expression. Collectively, our data indicate that somatic DNA methylation follows homologous repair and is subjected to remodeling by local transcription in a discrete time window during and after the damage. We propose that DNA methylation of repaired genes represents a DNA damage code and is source of variation of gene expression.