The shade avoidance response is mainly evident as increased plant elongation at the expense of leaf and root expansion. Despite the advances in understanding the mechanisms underlying shade-induced hypocotyl elongation, little is known about the responses to simulated shade in organs other than the hypocotyl. In Arabidopsis, there is evidence that shade rapidly and transiently reduces the frequency of cell division in young first and second leaf primordia through a non-cell-autonomous mechanism. However, the effects of canopy shade on leaf development are likely to be complex and need to be further investigated. Using combined methods of genetics, cell biology, and molecular biology, we uncovered an effect of prolonged canopy shade on leaf development. We show that persistent shade determines early exit from proliferation in the first and second leaves of Arabidopsis. Furthermore, we demonstrate that the early exit from proliferation in the first and second leaves under simulated shade depends at least in part on the action of the Homeodomain-leucine zipper II (HD-Zip II) transcription factors ARABIDOPSIS THALIANA HOMEOBOX2 (ATHB2) and ATHB4. Finally, we provide evidence that the ATHB2 and ATHB4 proteins work in concert. Together the data contribute new insights on the mechanisms controlling leaf development under canopy shade.