Retinoids are potent inducers of cell cycle arrest and differentiation of numerous cell types, notably granulocytes. However the mechanisms by which retinoids mediate cell cycle arrest during differentiation remain unclear. We have used myeloid differentiation to characterize the molecular pathways that couple cell cycle withdrawal to terminal differentiation. Using primary cells from mice deficient for either the cyclin-dependent kinase inhibitor (CDKi) p27(Kip1), the Myc antagonist Mad1, or both Mad1 and p27(Kip1), we observed that signals mediated through retinoic acid receptor alpha (RAR alpha), but not RAR beta or gamma, required both Mad1 and p27(Kip1) to induce cell cycle arrest and to accelerate terminal differentiation of granulocytes. Although RAR alpha did not directly regulate Mad1 or p27(Kip1), the RAR alpha target gene C/EBP epsilon directly regulated transcription of Mad1. Induction of C/EBP epsilon activity in granulocytic cells led to rapid induction of Mad1 protein and transcript, with direct binding of C/EBP epsilon to the Mad1 promoter demonstrated through chromatin immunoprecipitation assay. These data demonstrate that cell cycle arrest in response to RAR alpha specifically requires Mad1 and p27(Kip1) and that Mad1 is transcriptionally activated by CCAAT/enhancer-binding protein epsilon (C/EBP epsilon). Moreover, these data demonstrate selectivity among the RARs for cell cycle arrest pathways and provide a direct mechanism to link differentiation induction and regulation of the Myc antagonist Mad1.