The PML gene is fused to the retinoic acid receptor alpha (RAR alpha) gene in chromosomal translocations associated with acute promyelocytic leukemia (APL). Ablation of murine PML protein by homologous recombination revealed that PML regulates hemopoietic differentiation and controls cell growth and tumorigenesis. PML function was essential for the tumor-growth-suppressive activity of retinoic acid (RA) and for its ability to induce terminal myeloid differentiation of precursor cells. PML was needed for the RA-dependent transactivation of the p21(WAF1/CIP1) gene, which regulates cell cycle progression and cellular differentiation, These results indicate that PML is critical component of the RA pathway and that disruption of its activity by the PML-RAR alpha fusion protein may be important in APL pathogenesis.