CYCD3;1 expression in Arabidopsis is associated with proliferating tissues such as meristems and developing leaves but not with differentiated tissues. Constitutive overexpression of CYCD3;1 increases CYCD3;1-associated kinase activity and reduces the proportion of cells in the G1-phase of the cell cycle. Moreover, CYCD3;1 overexpression leads to striking alterations in development. Leaf architecture in overexpressing plants is altered radically, with a failure to develop distinct spongy and palisade mesophyll layers. Associated with this, we observe hyperproliferation of leaf cells; in particular, the epidermis consists of large numbers of small, incompletely differentiated polygonal cells. Endoreduplication, a marker for differentiated cells that have exited from the mitotic cell cycle, is inhibited strongly in CYCD3;1-overexpressing plants. Transcript analysis reveals an activation of putative compensatory mechanisms upon CYCD3;1 overexpression or subsequent cell cycle activation. These results demonstrate that cell cycle exit in the G1-phase is required for normal cellular differentiation processes during plant development and suggest a critical role for CYCD3 in the switch from cell proliferation to the final stages of differentiation.