The fusion gene AML1-ETO is the product of t(8;21)(q22;q22), one of the most common chromosomal translocations associated with acute myeloid leukemia. To investigate the impact of AML1-ETO on hematopoiesis, tetracycline-inducible AML1-ETO-expressing cell lines were generated using myeloid cells. AML1-ETO is tightly and strongly induced upon tetracycline withdrawal. The proliferation of AML1-ETO(+) cells was markedly reduced, and most of the cells eventually underwent apoptosis. RNase protection assays revealed that the amount of Bcl-2 mRNA was decreased after AML1-ETO induction. Enforced expression of Bcl-2 was able to significantly delay, but not completely overcome, AML1-ETO-induced apoptosis. Prior to the onset of apoptosis, we also studied the ability of AML1-ETO to modulate differentiation. AML1-ETO expression altered granulocytic differentiation of U937T-A/E cells. More significantly, this change of differentiation was associated with the down-regulation of CCAAT/enhancer binding protein alpha (C/EBPalpha), a key regulator of granulocytic differentiation. These observations suggest a dichotomy in the functions of AML1-ETO: (i) reduction of granulocytic differentiation correlated with decreased expression of C/EBPalpha and (ii) growth arrest leading to apoptosis with decreased expression of CDK4, c-myc, and Bcl-2. We predict that the preleukemic AML1-ETO(+) cells must overcome AML1-ETO-induced growth arrest and apoptosis prior to fulfilling their leukemogenic potential.