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Human leukocyte antigen class I (HLA-I) down-regulation has been reported in many human cancers to be associated with poor clinical outcome. However, its connection to tumor-initiating cells (TICs) remains unknown. In this study, we report that HLA-I is down-regulated in a subpopulation of cells that have high tumor initiating capacity in different types of human sarcomas. Detailed characterization revealed their distinct molecular profiles regarding proliferation, apoptosis and stemness programs. Notably, these TICs can be induced to differentiate along distinct mesenchymal lineages, including the osteogenic pathway. The retinoic acid receptor signaling pathway is overexpressed in HLA-1 negative TICs. All-trans retinoic acid treatment successfully induced osteogenic differentiation of this subpopulation, in vitro and in vivo, resulting in significantly decreased tumor formation. Thus, our findings indicate down-regulated HLA-I is a shared feature of TICs in a variety of human sarcomas, and differentiation therapy strategies may specifically target undifferentiated TICs and inhibit tumor formation.