PHOX2B is a homeodomain-containing protein that is involved in the development of the peripheral nervous system and is the major disease gene for the rare congenital breathing disorder congenital central hypoventilation syndrome (CCHS). Germline PHOX2B alterations were also recently discovered in neuroblastoma cases with CCHS and/or Hirschsprung disease, but a comprehensive survey for mutational frequency and functional consequence has not been performed. We therefore studied a large panel of hereditary neuroblastomas to understand the frequency and functional effects of PHOX2B mutations. Three of 47 individuals with presumed genetic predisposition to neuroblastoma showed a germline PHOX2B mutation (6.4%). Mutations were also discovered in 2 of 30 human neuroblastoma-derived cell lines, but none of 86 primary tumors from patients with sporadically occurring neuroblastoma. The vast majority of primary tumors showed abundant PHOX2B mRNA expression relative to the remainder of the transcriptome. Consistent with its role as an important neurodevelopmental gene, forced overexpression of wild-type PHOX2B in neuroblastoma cell lines suppressed cell proliferation and synergized with all-trans retinoic acid to promote differentiation. Patient-derived mutant PHOX2B constructs retained the ability to suppress cellular proliferation, but were not able to promote differentiation or activate expression of a known PHOX2B target gene in vitro. These findings show that PHOX2B alterations are a rare cause of hereditary neuroblastoma, but disruption of this neurodevelopmental pathway can interfere with transcription-dependent terminal differentiation. These data also suggest that the genetics of neuroblastoma initiation are complex, and highlight genes involved in normal noradrenergic development as candidate predisposition genes.