Rhabdomyosarcoma comprises two major subtypes, fusion positive (PAX3-FOXO1 or PAX7-FOXO1) and fusion negative. To investigate the significance of DNA methylation in these subtypes, we analyzed methylation profiles of 37 rhabdomyosarcoma tumors and 10 rhabdomyosarcoma cell lines, as well as 8 normal tissues. Unsupervised clustering of DNA methylation clearly distinguished the fusion-positive and fusion-negative subsets. The fusion-positive tumors showed substantially lower overall levels of methylation compared with fusion-negative tumors. Comparison with the methylation pattern of normal skeletal muscle and bone marrow indicates that fusion-negative rhabdomyosarcoma is more similar to these normal tissues compared with fusion-positive rhabdomyosarcoma, and suggests that many of the methylation differences between these subtypes arise from 'aberrant' hyper- and hypomethylation events in fusion-positive rhabdomyosarcoma. Integrative methylation and gene expression analysis revealed that methylation differences between fusion-positive and fusion-negative tumors could either be positively or negatively associated with mRNA expression. There was no significant difference in the distribution of PAX3-FOXO1-binding sites between genes with and without differential methylation. However, the finding that PAX3-FOXO1-binding sites were enriched among genes that were both differentially methylated and differentially expressed suggests that the fusion protein interacts with DNA methylation to regulate target gene expression. An 11-gene DNA methylation signature, classifying the rhabdomyosarcoma tumors into fusion-positive and fusion-negative subsets, was established and validated by pyrosequencing assays. Notably, EMILIN1 (part of the 11-gene signature) showed higher methylation and lower mRNA expression in fusion-positive compared with fusion-negative tumors, and demonstrated demethylation and re-expression in multiple fusion-positive cell lines after treatment with 5-aza-2'-deoxycytidine. In conclusion, our study demonstrates that fusion-positive and fusion-negative rhabdomyosarcoma tumors possess characteristic methylation profiles that contribute to the expression differences between these fusion subtypes. These findings indicate an important relationship between fusion status and epigenetic changes in rhabdomyosarcoma, present a novel approach for ascertaining fusion status, and may identify new therapeutic targets in rhabdomyosarcoma.