Hematopoietic transcription factors are involved in chromosomal translocations, which generate fusion proteins contributing to leukemia pathogenesis. Analysis of patient's primary leukemia blasts revealed that those carrying the t(8;21) generating AML1/ETO, the most common acute myeloid leukemia-associated fusion protein, display low levels of a microRNA-223 (miR-223), a regulator of myelopoiesis. Here, we show that miR-223 is a direct transcriptional target of AML1/ETO. By recruiting chromatin remodeling enzymes at an AML1-binding site on the pre-miR-223 gene, AML1/ETO induces heterochromatic silencing of miR-223. Ectopic miR-223 expression, RNAi against AML1/ETO, or demethylating treatment enhances miR-223 levels and restores cell differentiation. Here, we identify an additional action for a leukemia fusion protein linking the epigenetic silencing of a microRNA locus to the differentiation block of leukemia.