Cellular differentiation is governed by changes in gene expression, but at the same time, a cell's identity needs to be maintained through multiple cell divisions during maturation. In myeloid cell lines, retinoids induce gene expression and a well-characterized two-step lineage-specific differentiation. To identify mechanisms that contribute to cellular transcriptional memory, we analyzed the epigenetic changes taking place on regulatory regions of tissue transglutaminase, a gene whose expression is tightly linked to retinoid-induced differentiation. Here we report that the induction of an intermediary or "primed" state of myeloid differentiation is associated with increased H4 arginine 3 and decreased H3 lysine 4 methylation. These modifications occur before transcription and appear to prime the chromatin for subsequent hormone-regulated transcription. Moreover, inhibition of methyltransferase activity, pre-acetylation, or activation of the enzyme PAD4 attenuated retinoid-regulated gene expression, while overexpression of PRMT1, a methyltransferase, enhanced retinoid responsiveness. Taken together, our results suggest that H4 arginine 3 methylation is a bona fide positive epigenetic marker and regulator of transcriptional responsiveness as well as a signal integration mechanism during cell differentiation and, as such, may provide epigenetic memory.