BACKGROUND: In several eukaryotes, DNA methylation occurs within the coding regions of many genes, termed gene body methylation (GbM). Whereas the role of DNA methylation on the silencing of transposons and repetitive DNA is well understood, gene body methylation is not associated with transcriptional repression, and its biological importance remains unclear. RESULTS: We report a newly discovered type of GbM in plants, which is under constitutive addition and removal by dynamic methylation modifiers in all cells, including the germline. Methylation at Dynamic GbM genes is removed by the DRDD demethylation pathway and added by an unknown source of de novo methylation, most likely the maintenance methyltransferase MET1. We show that the Dynamic GbM state is present at homologous genes across divergent lineages spanning over 100 million years, indicating evolutionary conservation. We demonstrate that Dynamic GbM is tightly associated with the presence of a promoter or regulatory chromatin state within the gene body, in contrast to other gene body methylated genes. We find Dynamic GbM is associated with enhanced gene expression plasticity across development and diverse physiological conditions, whereas stably methylated GbM genes exhibit reduced plasticity. Dynamic GbM genes exhibit reduced dynamic range in drdd mutants, indicating a causal link between DNA demethylation and enhanced gene expression plasticity. CONCLUSIONS: We propose a new model for GbM in regulating gene expression plasticity, including a novel type of GbM in which increased gene expression plasticity is associated with the activity of DNA methylation writers and erasers and the enrichment of a regulatory chromatin state.