Acute myeloid leukemia (AML) is a disease of the elderly. Poor outcomes with standard therapies necessitate novel approaches. Outpatient regimens sufficiently potent and well tolerated to induce remissions and enable continuation therapy may be beneficial. In this phase-1 study, we determined the maximum tolerated dose (MTD) and the efficacy for sequential azacitidine and lenalidomide as remission induction and continuation therapy in elderly, previously untreated patients. We investigated the impact on global DNA methylation and bone marrow cytokines, and sought biological predictors of response. Eighteen patients were enrolled. The MTD was not reached. Median follow-up was 8.2 months (10.3 months for survivors). Common adverse events included fatigue, injection site reactions, constipation, nausea, pruritus and febrile neutropenia. Ten patients responded (56%), and the rate of complete remissions (CRs) or CRs with incomplete recovery of blood counts for evaluable patients was 44% (7/16). The median response duration was 6.2 months. DNA demethylation and changes in bone marrow cytokines were observed; responders had a unique cytokine profile and a trend towards lower methylation levels. Sequential azacitidine and lenalidomide was well tolerated with encouraging clinical and biological activity in previously untreated elderly AML patients. This trial is registered at ClinicalTrials.gov (NCT00890929).