Abstract The brain is built from a large number of cell types which have been historically classified using location, morphology and molecular markers. Recent research suggests an important role of epigenetics in shaping and maintaining cell identity in the brain. To elucidate the role of DNA methylation in neuronal differentiation, we developed a new protocol for separation of nuclei from the two major populations of human prefrontal cortex neurons—GABAergic interneurons and glutamatergic (GLU) projection neurons. Major differences between the neuronal subtypes were revealed in CpG, non-CpG and hydroxymethylation (hCpG). A dramatically greater number of undermethylated CpG sites in GLU versus GABA neurons were identified. These differences did not directly translate into differences in gene expression and did not stem from the differences in hCpG methylation, as more hCpG methylation was detected in GLU versus GABA neurons. Notably, a comparable number of undermethylated non-CpG sites were identified in GLU and GABA neurons, and non-CpG methylation was a better predictor of subtype-specific gene expression compared to CpG methylation. Regions that are differentially methylated in GABA and GLU neurons were significantly enriched for schizophrenia risk loci. Collectively, our findings suggest that functional differences between neuronal subtypes are linked to their epigenetic specification.