TEL/platelet-derived growth factor receptor β (PDGFβR) is the protein product of the t(5;12) translocation in chronic myelomonocytic leukemia. TEL/PDGFβR transforms interleukin-3 (IL-3)–dependent Ba/F3 and 32D cells to IL-3 independence and induces a murine myeloproliferative disease in a bone marrow transplantation model of leukemogenesis. The fusion protein encodes a constitutively activated, cytoplasmic tyrosine kinase that activates multiple signal transduction pathways. To identify the signaling pathways that are necessary for transformation by TEL/PDGFβR, transformed Ba/F3 and 32D cells were studied. TEL/PDGFβR activates the kinase activity of phosphatidylinositol-3 (PI3) kinase and stimulates phosphorylation of its downstream substrates, including Akt and p70S6 kinase. Activation of this pathway requires the kinase activity of TEL/PDGFβR and is inhibited by the PDGFβR inhibitor, STI571. Furthermore, inhibition of PI3 kinase with the pharmacologic inhibitor, LY294002, inhibits growth of the transformed cells. Treated cells arrest in the G1 phase of the cell cycle within 16 hours but do not undergo apoptosis. To study the mechanism of cell cycle arrest by LY294002, the activity of the cdk4 complex, which regulates the transit of cells from the G1 to S phase in hematopoietic cells, was examined. Both STI571 and LY294002 lead to a decrease in the activity of cdk4 kinase activity and a decrease in expression of both Cyclin D2 and Cyclin E within several hours. These studies demonstrate the presence of a signaling pathway from TEL/PDGFβR to PI3 kinase and subsequently to regulation of the cdk4 kinase complex. Activation of this pathway is necessary for transformation by TEL/PDGFβR.