Smoking-associated DNA hypomethylation has been observed in blood cells and linked to lung cancer risk. However, its cause and mechanistic relationship to lung cancer remain unclear. We studied the association between tobacco smoking and epigenome-wide methylation in non-tumor lung (NTL) tissue from 237 lung cancer cases in the Environment And Genetics in Lung cancer Etiology study, using the Infinium HumanMethylation450 BeadChip. We identified seven smoking-associated hypomethylated CpGs (P < 1.0 × 10−7), which were replicated in NTL data from The Cancer Genome Atlas. Five of these loci were previously reported as hypomethylated in smokers’ blood, suggesting that blood-based biomarkers can reflect changes in the target tissue for these loci. Four CpGs border sequences carrying aryl hydrocarbon receptor binding sites and enhancer-specific histone modifications in primary alveolar epithelium and A549 lung adenocarcinoma cells. A549 cell exposure to cigarette smoke condensate increased these enhancer marks significantly and stimulated expression of predicted target xenobiotic response-related genes AHRR (P = 1.13 × 10−62) and CYP1B1 (P < 2.49 × 10−61). Expression of both genes was linked to smoking-related transversion mutations in lung tumors. Thus, smoking-associated hypomethylation may be a consequence of enhancer activation, revealing environmentally-induced regulatory elements implicated in lung carcinogenesis.