UHRF1 (Ubiquitin-like, containing PHD and RING finger domains, 1) recruits DNMT1 to hemimethylated DNA during replication, is essential for maintaining DNA methylation patterns during cell division and is suggested to direct additional repressive epigenetic marks. Uhrf1 mutation in zebrafish results in multiple embryonic defects including failed hepatic outgrowth, but the epigenetic basis of these phenotypes is not known. We find that DNA methylation is the only epigenetic mark that is depleted in uhrf1 mutants and make the surprising finding that despite the reduced organ size in uhrf1 mutants, genes regulating DNA replication and S-phase progression were highly upregulated. Further, there is a striking increase in BrdU incorporation in uhrf1 mutant cells, and they retained BrdU labeling over several days, indicating they are arrested in S-phase. Moreover, some of the label retaining nuclei co-localized with TUNEL positive nuclei, suggesting that arrested cells are responsible for apoptosis. Importantly, dnmt1 mutation phenocopies the S-phase arrest and hepatic outgrowth defects in uhrf1 mutants and Dnmt1 knock-down enhances the uhrf1 hepatic phenotype. Together, these data indicate that DNA hypomethylation is sufficient to generate the uhrf1 mutant phenotype by promoting an S-phase arrest. We thus propose that cell cycle arrest is a mechanism to restrict propagation of epigenetically deranged cells during embryogenesis.