Cell fusion involving progenitor cells is a newly recognized phenomenon thought to contribute to tissue differentiation. The molecular mechanisms governing cell fusion are unknown. P-glycoprotein and related ATP-binding cassette transporters are expressed by progenitor cells, but their physiological role in these cell types has not been defined. Here, we have cloned ABCB5, a rhodamine efflux transporter and novel member of the human P-glycoprotein family, which marks CD133-expressing progenitor cells among human epidermal melanocytes and determines as a regulator of membrane potential the propensity of this subpopulation to undergo cell fusion. Our findings show that polyploid ABCB5+ cells are generated by cell fusion and that this process is specifically enhanced by ABCB5 P-glycoprotein blockade. Remarkably, multinucleated cell hybrids gave rise to mononucleated progeny, demonstrating that fusion contributes to culture growth and differentiation. Thus, our findings define a molecular mechanism for cell fusion involving progenitor cells and show that fusion and resultant growth and differentiation are not merely spontaneous events, but phenomena regulated by ABCB5 P-glycoprotein.