Aberrant DNA hypermethylation in human cancer has been associated with Polycomb target genes in embryonic stem (ES) cells, but a functional link of the Polycomb-targeted differentiation program to tumorigenesis remains to be established. Here, through epigenome analysis correlating DNA hypermethylation in colon cancer with ES cell pluripotency and differentiation, we identified a set of DNA hypermethylated genes in cancer cells that are Polycomb targets strongly associated with ES cell differentiation, including HAND1, a developmental regulator. Intriguingly, HAND1 is silenced in over 90% of human primary colorectal tumors, and re-expression of HAND1 in colon cancer cells induces terminal differentiation, inhibits proliferation and prevents xenograft tumor formation. Moreover, hypermethylated HAND1 has a minimum enrichment of EZH2-H3K27me3 in cancer cells, but becomes EZH2 bound and bivalent upon the loss of DNA methylation, suggesting a sequential gene silencing event during oncogenesis. These findings established a functional role of Polycomb-targeted differentiation program as a tumor-suppressor event epigenetically inactivated in human cancer.