Epigenetic changes are common alterations in cancer cells. Here, we have investigated the role of Polycomb group proteins in the establishment and maintenance of the aberrant silencing of tumor suppressor genes during transformation induced by the leukemia-associated PML-RARalpha fusion protein. We show that in leukemic cells knockdown of SUZ12, a key component of Polycomb repressive complex 2 (PRC2), reverts not only histone modification but also induces DNA demethylation of PML-RARalpha target genes. This results in promoter reactivation and granulocytic differentiation. Importantly, the epigenetic alterations caused by PML-RARalpha can be reverted by retinoic acid treatment of primary blasts from leukemic patients. Our results demonstrate that the direct targeting of Polycomb group proteins by an oncogene plays a key role during carcinogenesis.