The human leukemic cell lines K562 and HL-60 were cocultured with normal bone marrow (BM) cells. Coculture with 10(4) K562 or HL-60 cells results in 50% inhibition of normal CFU-E and BFU-E colony formation. However, when the same number of K562 and HL-60 cells is first treated for two to five days with agents that induce their differentiation, a gradual loss in their capacity to inhibit CFU-E and BFU-E colony formation is observed. The inhibitory material in K562 cells is soluble and present in conditioned medium from cultures of these cells. The degree to which leukemic cell suppression of CFU-E and BFU-E growth is reversed is correlated with the time of exposure to the inducing agent. Suppression is no longer evident after five days of prior treatment with inducers. In fact, up to a 90% stimulation of CFU-E growth is observed in cocultures with K562 cells that have been pretreated with 30 to 70 mumol/L hemin for five days. K562 cells treated with concentrations of hemin as low as 30 mumol/L demonstrate increased hemoglobin synthesis and grow normally, but no longer have an inhibitory effect on CFU-E growth. Hence, reversal of normal BM growth inhibition must be caused by the more differentiated state of the K562 cells and not by a decrease in the number of these cells with treatment. Thus, induction of differentiation in cultured leukemic cells not only alters the malignant cell phenotype but also permits improved growth of accompanying normal marrow progenitor cells. Both are desired effects of chemotherapy.