Loss of function of tumor suppressor genes such as PTEN, C/EBPA and CTNNA1 has been found to play essential roles in leukemogenesis. However, whether these genes genetically interact remains unknown. We previously reported that the CTNNA1 gene is expressed at a very low level in the HL-60 cell line and in primary leukemia-initiating cells (LICs) with a 5q deletion. Here, we show that PTEN-mTOR signaling acts upstream to dictate the ratio of wild-type p42 C/EBPalpha to its dominant-negative p30 isoform, which critically determines whether p30 C/EBPalpha (lower p42/p30 ratio) or p42 C/EBPalpha (higher p42/p30 ratio) binds to the proximal promoter of the retained CTNNA1 allele. Binding of p30 C/EBPalpha recruits the PRC2 complex to suppress CTNNA1 transcription through repressive H3K27me3 modification, whereas binding of p42 C/EBPalpha relieves this repression and promotes CTNNA1 expression through activating H3K4me3 modification. Loss of Pten function in mice and zebrafish induces myelodysplasia with abnormal invasiveness of myeloid progenitors accompanied by significant reductions in both wild-type C/EBPalpha and alpha-catenin protein. Importantly, frame-shift mutations in either PTEN or CEBPA were detected exclusively in the primary LICs with low CTNNA1 expression. This study uncovers a novel molecular pathway, PTEN-C/EBPalpha-CTNNA1, which might be therapeutically targeted to eradicate LICs with low CTNNA1 expression.