Retroviral-mediated delivery of the P140K mutant O⁶-methylguanine-DNA methyltransferase (MGMT^P140K) into hematopoietic stem cells (HSC) has been proposed as a means to protect against dose-limiting myelosuppressive toxicity ensuing from chemotherapy combining O⁶-alkylating agents (e.g., temozolomide) with pseudosubstrate inhibitors (such as O⁶-benzylguanine) of endogenous MGMT. Because detoxification of O⁶-alkylguanine adducts by MGMT is stoichiometric, it has been suggested that higher levels of MGMT will afford better protection to gene-modified HSC. However, accomplishing this goal would potentially be in conflict with current efforts in the gene therapy field, which aim to incorporate weaker enhancer elements to avoid insertional mutagenesis. Using a panel of self-inactivating gamma-retroviral vectors that express a range of MGMT^P140K activity, we show that MGMT^P140K expression by weaker cellular promoter/enhancers is sufficient for in vivo protection/selection following treatment with O⁶-benzylguanine/temozolomide. Conversely, the highest level of MGMT^P140K activity did not promote efficient in vivo protection despite mediating detoxification of O⁶-alkylguanine adducts. Moreover, very high expression of MGMT^P140K was associated with a competitive repopulation defect in HSC. Mechanistically, we show a defect in cellular proliferation associated with elevated expression of MGMT^P140K, but not wild-type MGMT. This proliferation defect correlated with increased localization of MGMT^P140K to the nucleus/chromatin. These data show that very high expression of MGMT^P140K has a deleterious effect on cellular proliferation, engraftment, and chemoprotection. These studies have direct translational relevance to ongoing clinical gene therapy studies using MGMT^P140K, whereas the novel mechanistic findings are relevant to the basic understanding of DNA repair by MGMT. [Cancer Res 2008;68(15):6171–80]