DNA recognition by transcription activator-like effector (TALE) proteins is mediated by tandem repeats that specify nucleotides through repeat-variable diresidues. These repeat-variable diresidues form direct and sequence-specific contacts to DNA bases; hence, TALE-DNA interaction is sensitive to DNA chemical modifications. Here we conduct a thorough investigation, covering all theoretical repeat-variable diresidue combinations, for their recognition capabilities for 5-methylcytosine and 5-hydroxymethylcytosine, two important epigenetic markers in higher eukaryotes. We identify both specific and degenerate repeat-variable diresidues for 5-methylcytosine and 5-hydroxymethylcytosine. Utilizing these novel repeat-variable diresidues, we achieve methylation-dependent gene activation and genome editing in vivo; we also report base-resolution detection of 5hmC in an in vitro assay. Our work deciphers repeat-variable diresidues for 5-methylcytosine and 5-hydroxymethylcytosine, and provides tools for TALE-dependent epigenome recognition.Transcription activator-like effector proteins recognise specific DNA sequences via tandem repeats. Here the authors demonstrate TALEs can recognise the methylated bases 5mC and 5hmC, enabling them to detect epigenetic modifications.