Base modifications of cytosine are an important aspect of chromatin biology, as they can directly regulate gene expression, while DNA repair ensures that those modifications retain genome integrity. Here we characterize how cytosine DNA deaminase AID can initiate DNA demethylation. In vitro, AID initiated targeted DNA demethylation of methyl CpGs when in combination with DNA repair competent extracts. Mechanistically, this is achieved by inducing base alterations at or near methyl-cytosine, with the lesion being resolved either via single base substitution or a more efficient processive polymerase dependent repair. The biochemical findings are recapitulated in an in vivo transgenic targeting assay, and provide the genetic support of the molecular insight into DNA demethylation. This targeting approach supports the hypothesis that mCpG DNA demethylation can proceed via various pathways and mCpGs do not have to be targeted to be demethylated.