Despite an increased understanding of leukemogenesis, specific mechanisms that underlie ‘stemness’ in leukemia remain largely undefined. Here, we report a novel pathway which regulates leukemic differentiation through control of lysosomal biology. We show that disruption of INPP4B results in dysregulated lysosomal gene networks, reduced lysosomal numbers and proteolytic capacity in leukemia. Inpp4b- deficient HSCs and LSCs are functionally compromised. Inpp4b- deficient leukemia models develop more differentiated leukemias with reduced disease initiating potential, and improved overall survival compared to Inpp4b- expressing leukemias. Together, our data is consistent with a model where INPP4B restricts differentiation of LSCs through regulation of lysosomal function. These data provide a mechanism to explain the association of INPP4B with aggressive AML and highlight avenues for LSC-specific leukemia therapies. Statement of Significance This work is the first to show that the phosphoinositide phosphatase INPP4B regulates stemness and differentiation in AML, through a previously unknown role in lysosome function. Herein we describe a mechanism to explain why INPP4B overexpression is associated with poor clinical outcome in AML.