AF4 gene, frequently translocated with mixed-lineage leukemia (MLL) in childhood acute leukemia, encodes a putative transcriptional activator of the AF4/LAF4/FMR2 (ALF) protein family previously implicated in lymphopoiesis and Purkinje cell function in the cerebellum. Here, we provide the first evidence for a direct role of AF4 in the regulation of transcriptional elongation by RNA polymerase II (Pol II). We demonstrate that mouse Af4 functions as a positive regulator of Pol II transcription elongation factor b (P-TEFb) kinase and, in complex with MLL fusion partners Af9, Enl and Af10, as a mediator of histone H3-K79 methylation by recruiting Dot1 to elongating Pol II. These pathways are interconnected and tightly regulated by the P-TEFb-dependent phosphorylation of Af4, Af9 and Enl which controls their transactivation activity and/or protein stability. Consistently, increased levels of phosphorylated Pol II and methylated H3-K79 are observed in the ataxic mouse mutant robotic, an over-expression model of Af4. Finally, we confirm the functional relevance of Af4, Enl and Af9 to the regulation of gene transcription as their over-expression strongly stimulates P-TEFb-dependent transcription of a luciferase reporter gene. Our findings uncover a central role for these proteins in the regulation of transcriptional elongation and coordinated histone methylation, providing valuable insight into their contribution to leukemogenesis and neurodegeneration. Since these activities likely extend to the entire ALF protein family, this study also significantly inputs our understanding of the molecular basis of FRAXE mental retardation syndrome in which FMR2 expression is silenced.