5-Azacytidine (5-aza-CR) and 5-aza-2'-deoxycytidine (5-aza-CdR), analogs of cytidine modified in position 5, were originally developed as antitumor agents, and have been useful in the treatment of both childhood and adult leukemias. These agents are cytotoxic per se, but also induce differentiation in several experimental systems, most notably the induction of muscle, adipocytes, and chondrocytes in cultures of drug-treated mouse embryo fibroblasts. The mechanisms underlying this drug-induced differentiation have been difficult to unravel, a fact which limits the rational design of differentiation therapy as a modulator of cancer using these agents. Induction of new developmental pathways in cultured cells involves stable, heritable changes, presumably of an epigenetic nature. Our early studies demonstrated that changes in methylation of cytosine in DNA occurred concurrently with changes in developmental potential, and that the presence of 5-azacytosine in DNA interfered with the action of DNA methyltransferase. Since DNA methylation is believed to be involved at some level in the regulation of gene expression, the hypothesis was developed that changes in methylation allowed the expression of new genes whose activity initiated new pathways of differentiation. The characterization of this drug-induced system of differentiation has therefore opened the way to identifying genes directly involved in the initiation or modification of pathways of differentiation. The first of these was MyoD, a member of a family of myogenic determination genes. Expression of MyoD in myogenic cell lines has been correlated with loss of methylation at specific sites in the genome, but the critical events leading to expression of MyoD and muscle differentiation are poorly understood. Recent developments in understanding this mechanism are discussed.