Introduction of an exogenous retinoblastoma (RB) gene in RB-deficient retinoblastoma or osteosarcoma cells has been shown to suppress their neoplastic phenotype. In experiments designed to explore the potential mechanism of RB tumor suppression, we report here that the phosphorylation state of RB protein is modulated during normal cellular events. In resting cells, RB protein is present in its least phosphorylated form; in rapidly proliferating cells, RB protein is highly phosphorylated. Maximal phosphorylation is associated with S phase of the cell cycle. Induction of differentiation in several human leukemia cell lines by treatment with phorbol ester or retinoic acid leads to dephosphorylation of RB. Time course studies indicate that RB dephosphorylation precedes the total arrest of cell growth during differentiation. These observations strongly suggest that the function of RB protein is modulated by a phosphorylation/dephosphorylation mechanism during cell proliferation and differentiation.