Mutations in acute myeloid leukemia (AML)-associated oncogenes often arise in hematopoietic stem cells (HSCs) and promote acquisition of leukemia stem cell (LSC) phenotypes. However, as LSCs often share features of lineage-restricted progenitors, the relative contribution of differentiation status to LSC transformation is unclear. Using murine MLL-AF9 and MOZ-TIF2 AML models, we show that myeloid differentiation to granulocyte macrophage progenitors (GMPs) is critical for LSC generation. Disrupting GMP formation by deleting the lineage-restricted transcription factor C/EBPa blocked normal granulocyte formation and prevented initiation of AML. However, restoring myeloid differentiation in C/EBPa mutants with inflammatory cytokines reestablished AML transformation capacity. Genomic analyses of GMPs, including gene expression and H3K79me2 profiling in conjunction with ATAC-seq, revealed a permissive genomic environment for activation of a minimal transcription program shared by GMPs and LSCs. Together, these findings show that myeloid differentiation is a prerequisite for LSC formation and AML development, providing insights for therapeutic development.