The PML tumor suppressor of Acute Promyelocytic Leukemia (APL) regulates major apoptotic and growth suppressive pathways. In APL, PML is involved in a chromosomal translocation generating the PML-RARa fusion protein. Two missense mutations in the remaining PML allele have been identified, which give rise to a truncated cytoplasmic PML protein (Mut PML). APL patients carrying these mutations display resistance to retinoic acid (RA) and very poor prognosis. Here we show that Mut PML associates with cytoplasmic regions we refer to as PML-cytoplasmic bodies (PML-CBs). Mut PML interacts with PML-RARa in PML-CB and potentiates PML-RARa-mediated inhibition of RA-dependent transcription. Remarkably, Mut PML stabilizes PML-RARalpha and inhibits differentiation induced by pharmacological doses of RA. A mutant form of PML-RARalpha that accumulates in the cytoplasm inhibits RA-dependent transcription and differentiation, thus suggesting that cytoplasmic localization of PML-RARalpha may contribute to transformation. Finally, we show that the bcr3 PML-RARalpha form is predominantly cytoplasmic and accumulates in PML-CBs. Taken together, these findings reveal novel insights into the molecular mechanisms contributing to APL.