Chronic graft-versus-host-disease (GVHD) occurs in 40 - 60% of patients who survive for more than 3 months after hematopoietic stem cell transplantation from an allogeneic donor for treatment of hematological malignancy. Apart from recurrent malignancy, chronic GVHD is the leading cause of death and morbidity in this patient population. High-dose glucocorticoids have long served as the mainstay of treatment for chronic GVHD, at the cost of considerable morbidity. Mycophenolate mofetil (MMF) is a prodrug that is hydrolyzed to mycophenolic acid, which selectively inhibits inosine monophosphate dehydrogenase, thereby blocking the de novo pathway of purine synthesis in lymphocytes. Results from at least five phase II studies have suggested that MMF may be effective for treatment of steroid-refractory chronic GVHD. This application proposes a multi-center, phase III randomized double-blind clinical trial to determine whether MMF is effective for treatment of newly diagnosed chronic GVHD. All patients in both arms of the study will receive prednisone and a calcineurin inhibitor (cyclosporine or tacrolimus) as standard therapy for chronic GVHD. Patients in one arm will be treated with MMF, while those in the other arm will be treated with an identical appearing placebo. Efficacy will be assessed according to the proportion of patients who have treatment success, defined as discontinuation of all immunosuppressive treatment within 2 years after enrollment, with resolution of all reversible manifestations of chronic GVHD and no secondary therapy. Enrollment of 115 patients in each arm will provide 90% power to detect an increase in the success rate from 22% to 42% with a two-sided alpha of 0.05. Health-related quality of life assessment from four well-validated instruments will be used to test the hypotheses that treatment with MMF leads to a decrease in symptom severity and an improvement in physical function.