TET2/3 play a well-known role in epigenetic regulation and mouse development. However, their function in cellular differentiation and tissue homeostasis remains poorly understood. Here we show that ablation of TET2/3 in intestinal epithelial cells results in a murine phenotype characterized by a severe homeostasis imbalance in the small intestine.Tet2/3-deleted mice show a pronounced loss of mature Paneth cells as well as fewer Tuft and more Enteroendocrine cells. Further results show major changes in DNA methylation at putative enhancers, which are associated with cell fate-determining transcription factors and functional effector genes. Notably, pharmacological inhibition of DNA methylation partially rescues the methylation and cellular defects. TET2/3 loss also alters the microbiome, predisposing the intestine to inflammation under homeostatic conditions and acute inflammation-induced death. Together, our results uncover previously unrecognized critical roles for DNA demethylation, possibly occurring subsequently to chromatin opening during intestinal development, culminating in the establishment of normal intestinal crypts.