WT1, a transcription factor implicated in both normal kidney differentiation and tumorigenesis, is also expressed in differentiating hematopoietic progenitors. Most human acute leukemias contain high levels of the wild-type transcript, while a minority have point mutations, raising the possibility that this tumor suppressor might have a paradoxical oncogenic effect in some hematopoietic cells. Using high titer retroviral infection, we demonstrate that WT1 triggers rapid growth arrest and lineage-specific differentiation in primary hematopoietic progenitors and differentiation-competent leukemia cell lines, while it induces cellular quiescence in a primitive subset of primary precursors. Growth arrest by WT1 is associated with induction of p21(CIP1), but expression of this cyclin-dependent kinase inhibitor alone is insufficient for either cellular differentiation or primitive cell preservation. The effects of WT1 are enhanced by co-expression of its naturally occurring isoforms, and are correlated with the physiological expression pattern of WT1 in vivo. Our observations suggest a role for WT1 in the differentiation of human hematopoietic cells, and provide a functional model that supports its capacity as a tumor suppressor in human acute leukemia.