Circulating tumor DNA (ctDNA) has emerged as a useful diagnostic and prognostic biomarker in many cancers. Here, we conducted a study to investigate the potential use of ctDNA methylation markers for the diagnosis and prognostication of colorectal cancer (CRC) and used a prospective cohort to validate their effectiveness in screening patients at high risk of CRC. We first identified CRC-specific methylation signatures by comparing CRC tissues to normal blood leukocytes. Then, we applied a machine learning algorithm to develop a predictive diagnostic and a prognostic model using cell-free DNA (cfDNA) samples from a cohort of 801 patients with CRC and 1021 normal controls. The obtained diagnostic prediction model discriminated patients with CRC from normal controls with high accuracy (area under curve = 0.96). The prognostic prediction model also effectively predicted the prognosis and survival of patients with CRC (P < 0.001). In addition, we generated a ctDNA-based molecular classification of CRC using an unsupervised clustering method and obtained two subgroups of patients with CRC with significantly different overall survival (P = 0.011 in validation cohort). Last, we found that a single ctDNA methylation marker, cg10673833, could yield high sensitivity (89.7%) and specificity (86.8%) for detection of CRC and precancerous lesions in a high-risk population of 1493 participants in a prospective cohort study. Together, our findings showed the value of ctDNA methylation markers in the diagnosis, surveillance, and prognosis of CRC.