Detection of cellular changes in tissue biopsies has been the basis for cancer diagnostics. However, tissue biopsies are invasive and limited by inaccuracies due to sampling locations, restricted sampling frequency, and poor representation of tissue heterogeneity. Liquid biopsies are emerging as a complementary approach to traditional tissue biopsies to detect dynamic changes in specific cell populations. Cell-free DNA (cfDNA) fragments released into the circulation from dying cells can be traced back to the tissues and cell types they originated from using DNA methylation, an epigenetic regulatory mechanism that is highly cell-type specific. Decoding changes in the cellular origins of cfDNA over time can reveal altered host tissue homeostasis due to local cancer invasion and metastatic spread to distant organs as well as treatment responses. In addition to host-derived cfDNA, changes in cancer cells can be detected from cell-free, circulating tumor DNA (ctDNA) by monitoring DNA mutations carried by cancer cells. Here, we will discuss computational approaches to identify and validate robust biomarkers of changed tissue homeostasis using cell-free, methylated DNA in the circulation. We highlight studies performing genome-wide profiling of cfDNA methylation and those that combine genetic and epigenetic markers to further identify cell-type specific signatures. Finally, we discuss opportunities and current limitations of these approaches for implementation in clinical oncology.