The role of fusion proteins in acute myeloid leukemia (AML) is well recognized, but the leukemic target cell and the cellular mechanisms generating the AML phenotype are essentially unknown. To address this issue, an in vitro model to study the biologic activity of leukemogenic proteins was established. Highly purified human hematopoietic progenitor cells/stem cells (HPC/HSC) in bulk cells or single cells are transduced with retroviral vectors carrying cDNA of the fusion protein and the green fluorescent protein (GFP), purified to homogeneity and induced into multilineage or unilineage differentiation by specific hematopoietic growth factor (HGF) combinations. Expression of PML/RARα fusion protein in human HPC/HSC dictates the acute promyelocytic leukemia (APL) phenotype, largely through these previously unreported effects: rapid induction of HPC/HSC differentiation to the promyelocytic stage, followed by maturation arrest, which is abolished by retinoic acid; reprogramming of HPC commitment to preferential granulopoietic differentiation, irrespective of the HGF stimulus (transduction of single sibling HPC formally demonstrated this effect); HPC protection from apoptosis induced by HGF deprivation. A PML/RARα mutated in the co-repressor N-CoR/histone deacetylase binding region lost these biologic effects, showing that PML/RARα alters the early hematopoietic program through N-CoR–dependent target gene repression mechanisms. These observations identify the cellular mechanism underlying development of the APL phenotype, showing that the fusion protein directly dictates the specific lineage and differentiation stage of leukemic cells.