TET enzymes oxidize 5-methylcytosine (5mC) to 5-hydroxymethylcytosine (5hmC), which can lead to DNA demethylation. However, direct connections between TET-mediated DNA demethylation and transcriptional output are difficult to establish owing to challenges in distinguishing global versus locus-specific effects. Here we show that TET1, TET2 and TET3 triple-knockout (TKO) human embryonic stem cells (hESCs) exhibit prominent bivalent promoter hypermethylation without an overall corresponding decrease in gene expression in the undifferentiated state. Focusing on the bivalent PAX6 locus, we find that increased DNMT3B binding is associated with promoter hypermethylation, which precipitates a neural differentiation defect and failure of PAX6 induction during differentiation. dCas9-mediated locus-specific demethylation and global inactivation of DNMT3B in TKO hESCs partially reverses the hypermethylation at the PAX6 promoter and improves differentiation to neuroectoderm. Taking these findings together with further genome-wide methylation and TET1 and DNMT3B ChIP–seq analyses, we conclude that TET proteins safeguard bivalent promoters from de novo methylation to ensure robust lineage-specific transcription upon differentiation.