Deregulation of the epigenome is a common event in malignancy, however, deciphering the earliest epigenetic events remains a challenge. Studies of the cancer epigenome to date have utilised cancer cell lines or clinical samples, where it is difficult to establish the initial epigenetic lesions in carcinogenesis. Here, we analysed the epigenome of normal Human Mammary Epithelial Cells (HMEC) and the matched variant cell population (vHMEC) that have escaped senescence and undergone partial carcinogenic transformation, Using this model system we sought to identify the earliest epigenetic deregulation occurring during carcinogenesis. We found that the transcriptome of vHMEC resembles that of basal-like breast cancer. Moreover, in early vHMEC there is significant deregulation of MYC, p53, EZH2/polycomb and the Aryl Hydrocarbon Receptor (AHR). Interestingly, vHMECs also exhibit genome-wide changes in DNA methylation affecting key cancer-associated pathways. Hypermethylation predominately impacted gene promoters (particularly those targeted by AHR and TP53) and polycomb associated loci, whereas enhancers were significantly de-methylated. Finally, we demonstrate that epigenetic changes observed in vHMECs, also occur in basal-like breast cancer (notably FOXA1 hypermethylation) providing potential new opportunities for early detection. Overall our results suggest that the first steps of carcinogenesis are associated with a co-ordinated deregulation of DNA methylation and chromatin modification spanning a range of genomic loci targeted by key transcription factors and a corresponding deregulation of transcriptional networks.