Elevated arginase activity has been implicated in several pathological conditions in sickle cell disease (SCD) and other inflammatory disorders. Recently, we showed that chloroquine (CQ), an anti-malarial and anti-rheumatoid drug, displays a competitive mode of inhibition on sickle erythrocyte arginase. However, the effects of CQ and its analogue, hydroxychloroquine (HCQ) on erythroid differentiation leading to induced fetal hemoglobin (Hb F) production is unknown. In the present study, we obtained evidence of the anti-proliferative and differentiation effects of CQ and HCQ at pharmacologically attainable concentrations. This differentiation effect was linked to a dose-dependent inhibition of arginase activity and induced hemoglobinization, as Hb F synthesis was increased by 3.4- and 3.2-fold for CQ or HCQ, respectively. Treatment of K562 cells with lipopolysaccharide (LPS) or 8-bromo-cAMP (Br-cAMP) failed to reverse the inhibitory effects of CQ or HCQ on arginase activity. Indeed, the combination of Br-cAMP with CQ in LPS-treated cells resulted in a significant enhancement of Hb F and total hemoglobin production. Further, we showed that CQ or HCQ maximally stimulated intracellular cGMP levels by 6.6- and 3.0-fold at 6 and 3h, respectively, as demonstrated by immunosorbent assay. However, co-treatment of K562 cells with CQ or HCQ in the presence of inhibitors of sGC-PKG-pathways reduced Hb F stimulation, suggesting the possible involvement of the sGC-PKG pathway. This is the first evidence demonstrating the capacity of anti-rheumatoid drugs to modulate the arginine-pathway and result in the enhancement of Hb F production, and thus may provide a paradigm for targeted therapy of hemoglobinopathies and other inflammation-related disorders.