Acute promyelocytic leukemia (APL) is invariably associated with chromosomal translocation to retinoic acid receptor alpha (RARalpha) locus. In a vast majority of cases, RARalpha translocates to and fuses with the promyelocytic leukemia (PML) gene. It was thought that the fusion protein PML-RARalpha acts as a double dominant negative mutant to inhibit the PML and RARalpha signaling. In an attempt to study the physiological role of retinoic acid in mammary gland development, we created a transgenic model system expressing a dominant negative RARalpha under the regulation of murine mammary tumor viral promoter. We found that the transgene was also targeted to the lymphoid system in addition to mammary gland. Here we showed that dominant negative RARalpha induced acute lymphoblastic leukemia and lymphoma development in the transgenic mice. Retinoic acid blocked tumor development ex vivo through induction of apoptosis. Thus, our results suggested that disruption of RARalpha signaling was the first essential step in the development of APL in vivo.