Therapeutic options are limited for elderly patients with acute myeloid leukemia (AML). A phase Ib/II study was undertaken to evaluate the maximum-tolerated dose (MTD) and preliminary efficacy of the pan-histone deacetylase inhibitor panobinostat (LBH589) in combination with azacitidine in patients with AML or high-risk myelodysplastic syndrome (MDS) naive to intensive chemotherapy. Thirty-nine patients (AML=29, MDS=10) received azacitidine 75 mg/m2 subcutaneously (days 1-5) and oral panobinostat (starting on day 5, thrice weekly for seven doses) in 28-day cycles until toxicity or disease progression. Dose-limiting toxicities during the phase Ib stage were observed in 0/4 patients receiving 10 mg panobinostat, in 1/7 patients (fatigue) receiving 20 mg, in 1/6 patients (fatigue) receiving 30 mg and in 4/5 patients (fatigue, syncope, hyponatremia and somnolence) receiving 40 mg. In phase II, an additional 17 patients received panobinostat at a MTD of 30 mg. The overall response rate (ORR=CR+CRi+PR) in patients with AML was 31 (9/29) and that in patients with MDS was 50 (5/10). After a median follow-up of 13 months, the median overall survival was 8 and 16 months in patients with AML and MDS, respectively. Increased histone H3 and H4 acetylation was a useful early biomarker of clinical response. Combining panobinostat with azacitidine was tolerable and clinically active in high-risk MDS/AML patients, warranting further exploration.