Differentiation of skeletal muscle is affected in myotonic dystrophy (DM) patients. Analysis of cultured myoblasts from DM patients shows that DM myoblasts lose the capability to withdraw from the cell cycle during differentiation. Our data demonstrate that the expression and activity of the proteins responsible for cell cycle withdrawal are altered in DM muscle cells. Skeletal muscle cells from DM patients fail to induce cytoplasmic levels of a CUG RNA binding protein, CUGBP1, while normal differentiated cells accumulate CUGBP1 in the cytoplasm. In cells from normal patients, CUGBP1 up-regulates p21 protein during differentiation. Several lines of evidence show that CUGBP1 induces the translation of p21 via binding to a GC-rich sequence located within the 5′ region of p21 mRNA. Failure of DM cells to accumulate CUGBP1 in the cytoplasm leads to a significant reduction of p21 and to alterations of other proteins responsible for the cell cycle withdrawal. The activity of cdk4 declines during differentiation of cells from control patients, while in DM cells cdk4 is highly active during all stages of differentiation. In addition, DM cells do not form Rb/E2F repressor complexes that are abundant in differentiated cells from normal patients. Our data provide evidence for an impaired cell cycle withdrawal in DM muscle cells and suggest that alterations in the activity of CUGBP1 causes disruption of p21-dependent control of cell cycle arrest.