The t(8;21)(q22;q22) translocation, present in 10-15% of acute myeloid leukemia (AML) cases results in the production of the AML1/ETO fusion protein. Expression of AML1/ETO in patients or mouse models is not sufficient to induce AML. Despite convincing evidence that AML1/ETO is directly involved in the pathogenesis of AML, the underlying mechanism is not well understood. Genetic and biochemical experiments suggest that AML1/ETO is a dominant inhibitor of the core binding factor (CBF) transcription complex that includes AML1 (RUNX1), the N-terminal fusion partner in the t(8;21). We generated and recently characterized a novel strain of transgenic mice in which the AML1/ETO cDNA was inserted into the Ly-6A gene that encodes Sca1, a well-characterized marker of murine hematopoietic stem cells. Unexpectedly, transgene expression assessed by flow cytometry was significantly lower than predicted in lymphocytes from these mice. We have confirmed this finding at the mRNA level and suggest that this phenotype is a consequence of dominant inhibition of transgene expression by AML1/ETO. The dominant negative characteristics of AML1/ETO may be important for AML pathogenesis and may provide a molecular target for therapeutic intervention.