Vascular plants have a long-distance transport system consisting of two tissue types with elongated cell files, phloem and xylem. Phloem has two basic cell types, enucleate sieve elements and companion cells. Xylem has various lignified cell types, such as tracheary elements, the differentiation of which involves deposition of elaborate cell wall thickenings and programmed cell death. Until now, little has been known about the genetic control of phloem-xylem patterning. Here we identify the ALTERED PHLOEM DEVELOPMENT (APL) gene, which encodes a MYB coiled-coil-type transcription factor that is required for phloem identity in Arabidopsis. Phloem is established through asymmetric cell divisions and subsequent differentiation. We show that both processes are impaired by a recessive apl mutation. This is associated with the formation of cells that have xylem characteristics in the position of phloem. The APL expression profile is consistent with a key role in phloem development. Ectopic APL expression in the vascular bundle inhibits xylem development. Our studies suggest that APL has a dual role both in promoting phloem differentiation and in repressing xylem differentiation during vascular development.