ABSTRACT Polycomb Repressive Complex 2 (PRC2) establishes and maintains di- and tri-methylation at histone 3 at lysine 27 (H3K27me2/3) in the genome and plays oncogenic and tumor suppressor roles in context-dependent cancer pathogenesis. While there is clinical success of therapeutically targeting PRC2 core component, EZH2, in PRC2-dependent cancers (e.g., follicular lymphoma, epithelioid sarcoma), it remains an unmet therapeutic bottleneck in PRC2-inactivated cancer. Biallelic inactivating mutations in PRC2 core components are a hallmark feature of high-grade malignant peripheral nerve sheath tumor (MPNST), an aggressive subtype of sarcoma with poor prognosis and no effective targeted therapeutics. Using a custom RNAi-based drop out screen, we observed that PRC2-inactivation is synthetic lethal with DNA methyltransferase 1 (DNMT1) downregulation; we further observed that small molecule DNMT inhibitors (DNMTis) resulted in enhanced cytotoxicity and antitumor response in PRC2-loss cancer context in vitro and in vivo . Mechanistically, DNMTi-mediated de-repression of retrotransposons (e.g., endogenous retroviral elements (ERVs)/LTR, LINE, SINE) and gene targets is partly restricted by PRC2, which potentially contributes to limited therapeutic activity in PRC2-wild-type (wt) cancer context. In contrast, DNMTi treatment synergizes with PRC2 inactivation and cooperatively amplifies the expression of retrotransposons (e.g., ERV/LTR, LINE, SINE), and subsequent viral mimicry response that promotes robust cell death in part through PKR-dependent double stranded-RNA (dsRNA) sensing. Collectively, our observations posit DNA methylation as a safeguard against anti-tumorigenic cell fate decisions in the context of PRC2-inactivation to promote cancer pathogenesis. Further, they identified a novel targeted therapeutic strategy in PRC2-inactivated MPNST and delineated the PRC2-inactivated cancer context for future preclinical exploration and clinical investigation of DNMT1-targeted therapies in cancer. SIGNIFICANCE PRC2-inactivation drives oncogenesis in various cancers but therapeutically targeting PRC2-loss has remained challenging. Here we show that PRC2 inactivating mutations sets up a tumor context-specific liability for synthetic lethal interaction with genetic and therapeutic inhibition of DNMT1. DNMT1 inhibitor-induced cytotoxicity in PRC2-loss cancer context is accompanied by innate immune signaling signature through PKR-mediated sensing of endogenous retrotransposons. These observations posit a therapeutic window via direct anti-tumor effect by DNMT1 inhibitors in PRC2-loss cancers, and point to potentials to be combined with innovative immunotherapeutic strategies to capitalize on innate immune signaling activation.