We have cloned a novel TEL/protein tyrosine phosphatase receptor-type R (PTPRR) chimeric gene generated by inv(12)(p13q13). PTPRR is the first protein tyrosine phosphatase identified as a fusion partner of TEL. The chimeric gene fused exon 4 of the TEL gene with exon 7 of the PTPRR gene, and produced 10 isoforms through alternative splicing. Two isoforms that were expressed at the highest level in the leukemic cells could have been translated into COOH-terminally truncated TEL protein possessing the helix-loop-helix domain (tTEL) and TEL/PTPRR chimeric protein linking the helix-loop-helix domain of TEL to the catalytic domain of PTPRR. These two mutant proteins exerted a dominant-negative effect over transcriptional repression mediated by wild-type TEL, although they themselves did not show any transcriptional activity. Heterodimerization with wild-type TEL might be an underlying mechanism in this effect. TEL/PTPRR did not exhibit any tyrosine phosphatase activity. Importantly, overexpression of TEL/PTPRR in granulocyte macrophage colony-stimulating factor-dependent UT7/GM cells resulted in their factor-independent proliferation, whereas overexpression of tTEL did not. After cytokine depletion, phosphorylated signal transducers and activators of transcription 3 (STAT3) significantly declined in mock cells, but remained in both tTEL- and TEL/PTPRR-overexpressing cells. Loss of tumor suppressive function of wild-type TEL and maintenance of STAT3-mediated signal could at least partly contribute to the leukemogenesis caused by inv(12)(p13q13).