In clinical practice and biomedical research populations are often divided categorically into distinct racial/ethnic groups. In reality, these categories, which are based on social rather than biological constructs, comprise diverse groups with highly heterogeneous histories, cultures, traditions, religions, social and environmental exposures and ancestral backgrounds. Their use is thus widely debated and genetic ancestry has been suggested as a complement or alternative to this categorization. However, few studies have examined the relative contributions of racial/ethnic identity, genetic ancestry, and environmental exposures on well-established and fundamental biological processes. We examined the associations between ethnicity, ancestry, and environmental exposures and DNA methylation. We typed over 450,000 CpG sites in primary whole blood of 573 individuals of diverse Hispanic descent who also had high-density genotype data. We found that both self-identified ethnicity and genetically determined ancestry were significantly associated with methylation levels at a large number of CpG sites (916 and 194, respectively). Among loci differentially methylated between ethnic groups, a median of 75.7% (IQR 45.8% to 92%) of the variance in methylation associated with ethnicity could be accounted for by shared genomic ancestry accounts. We also found significant enrichment (p = 4.2 × 10-64) of ethnicity-associated sites amongst loci previously associated with environmental and social exposures, particularly maternal smoking during pregnancy. Our study suggests that although differential methylation between ethnic groups can be partially explained by the shared genetic ancestry, a significant effect of ethnicity is likely due to environmental, social, or cultural factors, which differ between ethnic groups.