Hypoxia is a hallmark of solid tumors that drives malignant progression by altering epigenetic controls. In breast tumors, aberrant DNA methylation is a prevalent epigenetic feature associated with increased risk of metastasis and poor prognosis. However, the mechanism by which hypoxia alters DNA methylation or other epigenetic controls that promote breast malignancy remains poorly understood. We discovered that hypoxia deregulates TET1 and TET3, the enzymes that catalyze conversion of 5-methylcytosine (5mC) to 5-hydroxymethylcytosine (5hmC), thereby leading to breast tumor-initiating cell (BTIC) properties. TET1/3 and 5hmC levels were closely associated with tumor hypoxia, tumor malignancy, and poor prognosis in breast cancer patients. Mechanistic investigations showed that hypoxia leads to genome-wide changes in DNA hydroxymethylation associated with upregulation of TNFα expression and activation of its downstream p38-MAPK effector pathway. Coordinate functions of TET1 and TET3 were also required to activate TNFα-p38-MAPK signaling as a response to hypoxia. Our results reveal how signal transduction through the TET-TNFα-p38-MAPK signaling axis is required for the acquisition of BTIC characteristics and tumorigenicity in vitro and in vivo, with potential implications for how to eradicate BTIC as a therapeutic strategy.