Acute promyelocytic leukemia (APL) is an unique subtype of acute myeloid leukemia typically carrying a specific reciprocal chromosome translocation t(15;17) leading to the expression of a leukemia-generating fusion protein, PML-RARalpha. Nearly all de novo APL patients undergo disease remission when treated with all trans retinoic acid (ATRA) plus chemotherapy. APL patients that relapse following this type of therapy respond to As2O3 with disease remission once again. The mechanism of action of both ATRA and As2O3 appears to be by inducing granulocytic differentiation and this cellular differentiation seems to depend on PML-RARalpha proteolysis. ATRA treatment results in partial cleavage and complete degradation of PML-RARalpha protein in differentiation sensitive, but not in differentiation resistant APL cells. As2O3 treatment results in only complete degradation of PML-RARalpha protein in both ATRA-sensitive and -resistant APL cells. PML-RARalpha appears to cause leukemia by acting as a transcriptional repressor of RARalpha target genes and by inhibiting activity of transcription factor C/EBPalpha. Therefore, PML-RARalpha proteolysis induced by ATRA and As2O3 may play an important role in overcoming the repressive activity of PML-RARalpha and allowing cellular differentiation to proceed. This review will focus on the status of the PML-RARalpha fusion protein and its relationship to gene and differentiation induction as well as differentiation resistance of APL cells.