Epigenetic regulation of transcriptional silencing is essential for normal development. Despite its importance, in vivo systems for examining gene silencing at cellular resolution have been lacking in developing vertebrates. We describe a transgenic approach that allows monitoring of an epigenetically regulated fluorescent reporter in developing zebrafish and their progeny. Using a self-reporting Gal4-VP16 gene/enhancer trap vector, we isolated tissue specific drivers that regulate expression of the Green Fluorescent Protein (GFP) gene through a multicopy, Upstream Activator Sequence (UAS). Transgenic larvae initially exhibit robust fluorescence (GFP(high)); however, in subsequent generations, gfp expression is mosaic (GFP(low)) or entirely absent (GFP(off)), despite continued Gal4-VP16 activity. We find that transcriptional repression is heritable and correlated with methylation of the multicopy UAS. Silenced transgenes can be reactivated by increasing Gal4-VP16 levels or in DNA methyltransferase-1 (dnmt1) mutants. Strikingly, in dnmt1 homozygous mutants, reactivation of gfp expression occurs in a reproducible subset of cells, raising the possibility of different sensitivities or alternative silencing mechanisms in discrete cell populations. The results demonstrate the power of the zebrafish system for in vivo monitoring of epigenetic processes using a genetic approach.