In t(8;21) acute myeloid leukemia (AML), the AML1/ETO fusion protein promotes leukemogenesis by recruiting histone deacetylase (HDAC) and silencing AML1target genes important for hematopoietic differentiation. We hypothesized that depsipeptide (FR901228), a novel HDAC inhibitor evaluated in ongoing clinical trials, restores gene transcription and cell differentiation in AML1/ETO-positive cells. A dose-dependent increase in H3 and H4 histone acetylation was noted in depsipeptide-treated AML1/ETO-positive Kasumi-1 cells and blasts from a patient with t(8;21) AML. Consistent with this biological effect, we also showed a dose-dependent increase in cytotoxicity, expression of IL-3, here used as read-out for silenced AML1-target genes, upregulation of CD11b with other morphologic changes suggestive of partial cell differentiation in Kasumi-1 cells. Some of these biologic effects were also attained in other myeloid leukemia cell lines, suggesting that depsipeptide has differentiation and cytotoxic activity in AML cells, regardless of the underlying genomic abnormality. Notably, the activity of depsipeptide was enhanced by 5-aza-2'-deoxycytidine, a DNA methyltransferase inhibitor (DNMT). These two agents in combination resulted in enhanced histone acetylation, IL-3 expression, and cytotoxicity, suggesting HDAC and DNMT activities as a potential dual target in future therapeutic strategies for AML1/ETO and other molecular subgroups of AML.