A phosphatase activity present in peripheral blood myeloid cells of chronic myelogenous leukemia patients but not normal individuals alters nuclear protein binding to transcriptional enhancers of interferon-inducible genes. Cytoplasmic protein from peripheral blood myeloid cells of chronic myelogenous leukemia (CML) patients altered the electrophoretic mobility of complexes formed between nuclear proteins and interferon-inducible transcriptional enhancers. Immature myeloid marrow cells (blasts and promyelocytes) have a higher level of this activity than do mature myeloid marrow cells (bands and polys). This activity, which is not detectable in the peripheral blood cells of normal individuals, is at least 50-fold higher in CML marrow blasts and promyelocytes than that found in marrow blasts and promyelocytes of normal individuals. This activity was inhibited by in vivo incubation of immature myeloid cells with the phosphatase inhibitor, sodium orthovanadate (0.2 mM), and by adding orthovanadate (20 mM) directly to cytoplasmic proteins of myeloid cells. Interferon-alpha (1,000 U/ml) reduced the effects of the CML myeloid cell cytoplasmic protein on the electrophoretic mobility of nuclear protein-DNA complexes. These data suggest that a unique phosphatase may be involved in the abnormalities in CML which are modulated by interferon-alpha. 