Up to 1/5 of patients with wildtype thiopurine-S-methyltransferase (TPMT) activity prescribed azathioprine (AZA) or mercaptopurine (MP) demonstrate a skewed drug metabolism in which MP is preferentially methylated to yield methylmercaptopurine (MeMP). This is known as thiopurine hypermethylation and is associated with drug toxicity and treatment non-response. Co-prescription of allopurinol with low dose AZA/MP (25–33%) circumvents this phenotype and leads to a dramatic reduction in methylated metabolites; however, the biochemical mechanism remains unclear. Using intact and lysate red cell models we propose a novel pathway of allopurinol mediated TPMT inhibition, through the production of thioxanthine (TX, 2-hydroxymercaptopurine). In red blood cells pre-incubated with 250 μM MP for 2 h prior to the addition of 250 μM TX or an equivalent volume of Earle's balanced salt solution, there was a significant reduction in the concentration of MeMP detected at 4 h and 6 h in cells exposed to TX (4 h, 1.68, p = 0.0005, t-test). TX acts as a direct TPMT inhibitor with an apparent Ki of 0.329 mM. In addition we have confirmed that the mechanism is relevant to in vivo metabolism by demonstrating raised urinary TX levels in patients receiving combination therapy. We conclude that the formation of TX in patients receiving combination therapy with AZA/MP and allopurinol, likely explains the significant reduction of methylated metabolites due to direct TPMT inhibition.