The goal of Phase 1 of this clinical research study is to find the highest tolerable dose of lenalidomide that can be given in combination with azacitidine to patients with MDS or AML.

The goal of Phase 2 of this study is to learn if the combination dose of azacitidine and lenalidomide found in Phase 1 can help to control MDS and/or AML.

The safety of this drug combination will be studied in both Phases.

The Study Drugs:

Azacitidine is designed to block certain proteins that stop the function of tumor-fighting genes. By blocking the "bad" proteins, the tumor-fighting genes may be able to work better.

Lenalidomide is designed to change the immune system. It may also interfere with the development of tiny blood vessels that help support tumor growth. Therefore, in theory, it may decrease or prevent the growth of cancer cells.

Study Groups:

If you are found to be eligible to take part in this study, you will be assigned to a study group based on when you joined this study. Up to 6 groups of 3-6 participants will be enrolled in the Phase 1 portion of the study, and up to 40 participants will be enrolled in Phase 2.

If you are enrolled in the Phase 1 portion, the dose of lenalidomide you receive will depend on when you joined this study. The first group of participants will receive the lowest dose level of lenalidomide. Each new group will receive a higher dose of lenalidomide than the group before it, if no intolerable side effects were seen. This will continue until the highest tolerable dose of lenalidomide is found.

If you are enrolled in the Phase 2 portion, you will receive lenalidomide at the highest dose that was tolerated in the Phase 1 portion.

All participants will receive the same dose level of azacitidine.

Study Drug Administration:

Each study "cycle" will be about 3-8 weeks, depending on how well you tolerate the drugs, any side effects that you may have, and how your blood count and bone marrow recovers.

On Days 1-5 of every cycle, you will receive azacitidine by vein over 15-30 minutes.

In order to participate in this study you must register into and follow the requirements of the Revlimid REMS™ program of Celgene Corporation. This program provides education and counseling on the risks of fetal exposure, blood clots and reduced blood counts. You will be required to receive counseling every 28 days during treatment with lenalidomide, follow the pregnancy testing and birth control requirements of the program that are appropriate for you and take telephone surveys regarding your compliance with the program.

If you are enrolled in Phase 2 of the study, on Days 6-15 of every cycle, you will take capsules of lenalidomide by mouth.

You should swallow lenalidomide capsules whole with a cup (about 8 ounces) of water at the same time each day. Do not break, chew, or open the capsules. If you miss a dose of lenalidomide, take it as soon as you remember on the same day. If you miss taking your dose for the entire day, take your regular dose the next scheduled day (do NOT take double your regular dose to make up for the missed dose). If you take more than the prescribed dose of lenalidomide, you should seek emergency medical care if needed and contact study staff right away. Any unused lenalidomide should be returned as instructed through the RevAssist® program.

Any woman who can become pregnant should wear gloves if touching the lenalidomide capsules.

You have been informed of the risk of birth defects. If you are female, you agree not to become pregnant while taking lenalidomide. For this reason, lenalidomide is provided to patients under a special distribution program called Revlimid REMSTM.

Your dose of study drugs may be lowered if you experience side effects.

You may be given drugs to help prevent side effects, such as nausea, vomiting, and/or diarrhea. The doctor will tell you more about what drugs you may receive.

Study Visits:

At every study visit, you will be asked about any other drugs and/or treatments you may be receiving and about any side effects you may be having.

One (1) time during each week of Cycle 1:

• Your medical history will be recorded.
• You will have a physical exam.
• Blood (about 1-2 tablespoons) will be drawn for routine tests.

On Days 21 and 28 of Cycle 1 (+/- 3 days), you will have a bone marrow aspiration performed to check the status of the disease. You will then have a bone marrow aspiration performed every 7-14 days for the rest of the study. If at any point the disease appears to go into remission, you will then have a bone marrow aspiration performed every 1-3 cycles.

Before Day 1 of Cycles 2 and beyond:

• Your medical history will be recorded.
• You will have a physical exam.
• Blood (about 1-2 tablespoons) will be drawn for routine tests.

Pregnancy Testing:

If you are a woman who is able to become pregnant, you will have blood (about 1-2 tablespoons) or urine pregnancy tests 1 time a week for the first 4 weeks of the study, then every 4 weeks while on study, when you stop the study, and 4 weeks after you are off study.

If you are a woman who is able to become pregnant and your menstrual cycles are irregular, you will have blood (about 1-2 tablespoons) or urine pregnancy test 1 time a week for the first 4 weeks, then every 2 weeks while on study, when you stop the study, and 2 and 4 weeks after you are off study.

Length of Study:

You may continue to receive azacitidine as long as the doctor thinks it is in your best interest. You may receive lenalidomide as part of this study for as long as you are benefitting. You will be taken off study if the disease gets worse or you experience intolerable side effects.

This is an investigational study. Both azacitidine and lenalidomide are FDA approved and commercially available for the treatment of MDS. Azacitidine is not FDA approved or commercially available for treatment of AML. The combination as used in this study is investigational.

Up to 88 participants will take part in this study. All will be enrolled at MD Anderson.

Inclusion Criteria:

1. Patients with higher risk MDS (bone marrow blasts >/= 10% to 30% inclusive) of any age who refuse or are not eligible for frontline chemotherapy.
2. No prior therapy for higher risk MDS as defined above.
3. Performance status of </= 2 by the Eastern Cooperative Oncology Group (ECOG) scale.
4. Signed informed consent indicating that patients are aware of the investigational nature of this study in keeping with the policies of University of Texas MD Anderson Cancer Center (UTMDACC).
5. Hydroxyurea for patients with rapidly proliferative disease can be used up to 24 hours prior to therapy but not concomitantly with 5-azacitidine or lenalidomide. Hydroxyurea can be used once the patient has completed the planned 5 azacitidine and lenalidomide treatment.
6. Adequate liver function: Total bilirubin of </= 1.5 x upper limit of normal (ULN), AST (SGOT) and ALT (SGPT) </= 3 x ULN
7. Renal function - assessed by calculated creatinine clearance as follows (see Appendix: Cockcroft-Gault estimation of CrCl): 1. Phase I subjects must have calculated creatinine clearance >/= 60ml/min by Cockcroft-Gault formula. 2. Phase II subjects must have calculated creatinine clearance >/= 30ml/min by Cockcroft-Gault formula.
8. All study participants must be registered into the mandatory Revlimid REMS® program, and be willing and able to comply with the requirements of Revlimid REMS®.
9. Females of reproductive potential must adhere to the scheduled pregnancy testing as required in the Revlimid REMS® program.
10. Able to take aspirin (81 or 325 mg) daily as prophylactic anticoagulation (patients intolerant to ASA may use warfarin or low molecular weight heparin).
11. Females of childbearing potential (FCBP) must have a negative serum or urine pregnancy test with a sensitivity of at least 50 mIU/mL within 10 - 14 days prior to and again within 24 hours of prescribing lenalidomide (prescriptions must be filled within 7 days) and must either commit to continued abstinence from heterosexual intercourse or begin TWO acceptable methods of birth control, one highly effective method and one additional effective method AT THE SAME TIME, at least 28 days before she starts taking lenalidomide. FCBP must also agree to ongoing pregnancy testing.
12. Continued from #9: Men must agree to use a latex condom during sexual contact with a FCBP even if they have had a successful vasectomy.

Exclusion Criteria:

1. Nursing and pregnant females.
2. Known or suspected hypersensitivity to azacitidine or mannitol.
3. Patients with advanced malignant hepatic tumors.
4. Unwilling or unable to remain in compliance with the RevAssist® program
5. Known hypersensitivity to thalidomide or lenalidomide (if applicable).
6. The development of erythema nodosum if characterized by a desquamating rash while taking thalidomide or similar drugs.
7. Known seropositive for or active viral infection with human immunodeficiency virus (HIV), hepatitis B virus (HBV) or hepatitis C virus (HCV). Patients who are seropositive because of hepatitis B virus vaccine are eligible.

Baseline characteristics represented in study phase, Phase I and Phase II separately.

Adverse events collected for 28 day cycle, up to 8 weeks following first course.