Developing pre-B cells in the bone marrow alternate between proliferation and differentiation phases. We found that protein arginine methyl transferase 1 (PRMT1) and B cell translocation gene 2 (BTG2) are critical components of the pre-B cell differentiation program. The BTG2-PRMT1 module induced a cell-cycle arrest of pre-B cells that was accompanied by re-expression of Rag1 and Rag2 and the onset of immunoglobulin light chain gene rearrangements. We found that PRMT1 methylated cyclin-dependent kinase 4 (CDK4), thereby preventing the formation of a CDK4-Cyclin-D3 complex and cell cycle progression. Moreover, BTG2 in concert with PRMT1 efficiently blocked the proliferation of BCR-ABL1-transformed pre-B cells in vitro and in vivo. Our results identify a key molecular mechanism by which the BTG2-PRMT1 module regulates pre-B cell differentiation and inhibits pre-B cell leukemogenesis.