Abstract Polycomb repressive complex 2 (PRC2) has oncogenic and tumor-suppressive roles in cancer. There is clinical success of targeting this complex in PRC2-dependent cancers, but an unmet therapeutic need exists in PRC2-loss cancer. PRC2-inactivating mutations are a hallmark feature of high-grade malignant peripheral nerve sheath tumor (MPNST), an aggressive sarcoma with poor prognosis and no effective targeted therapy. Through RNAi screening in MPNST, we found that PRC2 inactivation increases sensitivity to genetic or small-molecule inhibition of DNA methyltransferase 1 (DNMT1), which results in enhanced cytotoxicity and antitumor response. Mechanistically, PRC2 inactivation amplifies DNMT inhibitor–mediated expression of retrotransposons, subsequent viral mimicry response, and robust cell death in part through a protein kinase R (PKR)–dependent double-stranded RNA sensor. Collectively, our observations posit DNA methylation as a safeguard against antitumorigenic cell-fate decisions in PRC2-loss cancer to promote cancer pathogenesis, which can be therapeutically exploited by DNMT1-targeted therapy. Significance: PRC2 inactivation drives oncogenesis in various cancers, but therapeutically targeting PRC2 loss has remained challenging. Here we show that PRC2-inactivating mutations set up a tumor context–specific liability for therapeutic intervention via DNMT1 inhibitors, which leads to innate immune signaling mediated by sensing of derepressed retrotransposons and accompanied by enhanced cytotoxicity. See related commentary by Guil and Esteller, p. 2020. This article is highlighted in the In This Issue feature, p. 2007