Cells of the osteoblast lineage affect homing, 1, 2 number of long term repopulating hematopoietic stem cells (HSCs) 3, 4, HSC mobilization and lineage determination and B lymphopoiesis 5-8. More recently osteoblasts were implicated in pre-leukemic conditions in mice 9, 10. Yet, it has not been shown that a single genetic event taking place in osteoblasts can induce leukemogenesis. We show here that in mice, an activating mutation of β-catenin in osteoblasts alters the differentiation potential of myeloid and lymphoid progenitors leading to development of acute myeloid leukemia (AML) with common chromosomal aberrations and cell autonomous progression. Activated β- catenin stimulates expression of the Notch ligand Jagged-1 in osteoblasts. Subsequent activation of Notch signaling in HSC progenitors induces the malignant changes. Demonstrating the pathogenetic role of the Notch pathway, genetic or pharmacological inhibition of Notch signaling ameliorates AML. Nuclear accumulation and increased β-catenin signaling in osteoblasts was also identified in 38% of patients with MDS/AML. These patients showed increased Notch signaling in hematopoietic cells. These findings demonstrate that genetic alterations in osteoblasts can induce AML, identify molecular signals leading to this transformation and suggest a potential novel pharmacotherapeutic approach to AML