5-methylcytosine (5mC) is a widespread silencing mechanism that controls genomic parasites. However, in many eukaryotes 5mC has gained complex roles in gene regulation beyond parasite control. Animals are a paradigmatic case for 5mC evolution, as they show widespread variability across lineages, ranging from gene regulation and transposable element control to loss of this base modification. Here we show that the protist animal relative Amoebidium appalachense displays both transposon and gene body methylation, a pattern reminiscent of invertebrates and plants. Unexpectedly, large hypermethylated regions of the Amoebidium genome derive from viral insertions, including hundreds of endogenised giant viruses contributing 14% of the encoded genes. Using a combination of inhibitors and functional genomic assays, we demonstrate that 5mC silences these giant virus insertions. Moreover, alternative Amoebidium isolates show polymorphic giant virus insertions, highlighting a dynamic process of infection, endogenisation and purging. Therefore we propose that 5mC is critical for the controlled co-existence of newly acquired viral DNA into eukaryotic genomes, making Amoebidium a unique model to understand the hybrid origins of eukaryotic genomes. Overall design: Profiling of cytosine methylation for Amoebidium appalachense and other ichthyosporeans using Enzymatic Methyl-seq, as well as 5-Azacytidine treatment vs control RNA-seq and Enzymatic Methyl-seq.