The role of different lineage specific transcription factors in directing hematopoietic cell fate towards myeloid lineage is well established but the status of epigenetic modifications has not been defined during this important developmental process. We used non proliferating, PU.1 inducible myeloid progenitor cells and differentiating bone marrow derived macrophages to study the PU.1 dependent KLF4 transcriptional regulation and its promoter demethylation during monocyte/macrophage differentiation. Expression of KLF4 was regulated by active demethylation of its promoter and PU.1 specifically bound to KLF4 promoter oligo harboring the PU.1 consensus sequence. Methylation specific quantitative PCR and Bisulfite sequencing indicated demethylation of CpG residues most proximal to the transcription start site of KLF4 promoter. Cloned KLF4 promoter in pGL3 Luciferase and CpG free pcpgf-bas vectors showed accentuated reporter activity when co-transfected with the PU.1 expression vector. In vitro methylation of both KLF4 promoter oligo and cloned KLF4 promoter vectors showed attenuated in vitro DNA binding activity and Luciferase/mouse Alkaline phosphotase reporter activity indicating the negative influence of KLF4 promoter methylation on PU.1 binding. The Cytosine deaminase, Activation Induced Cytidine Deaminase (AICDA) was found to be critical for KLF4 promoter demethylation. More importantly, knock down of AICDA resulted in blockade of KLF4 promoter demethylation, decreased F4/80 expression and other phenotypic characters of macrophage differentiation. Our data proves that AICDA mediated active demethylation of the KLF4 promoter is necessary for transcriptional regulation of KLF4 by PU.1 during monocyte/macrophage differentiation.