There is increasing evidence for the presence of an alternative code imprinted in the genome that might contribute to gene expression regulation through an indirect reading mechanism. In mammals, components of this coarse-grained regulatory mechanism include chromatin structure and epigenetic signatures, where d(CpG) nucleotide steps are key players. We report a comprehensive experimental and theoretical study of d(CpG) steps that provides a detailed description of their physical characteristics and the impact of cytosine methylation on these properties. We observed that methylation changes the physical properties of d(CpG) steps, having a dramatic effect on enriched CpG segments, such as CpG islands. We demonstrate that methylation reduces the affinity of DNA to assemble into nucleosomes, and can affect nucleosome positioning around transcription start sites. Overall, our results suggest a mechanism by which the basic physical properties of the DNA fiber can explain parts of the cellular epigenetic regulatory mechanisms.