A subset of papillary renal cell carcinomas (RCC) is characterized by the expression of a TFE3 fusion protein, where the fusion partner can be any of the several proteins identified so far such as PSF (PTB associated splicing factor), NonO, PRCC, CLTC and ASPL. These proteins result from chromosomal translocations involving the TFE3 gene located on the X chromosome. Our present study documents the central role of PSF-TFE3 in oncogenic transformation. We show that the inhibition of PSF-TFE3 expression through siRNA or shRNA leads to impaired growth, proliferation, invasion potential and long-term survival of UOK-145 papillary renal carcinoma-derived cells, which endogenously express PSF-TFE3. The oncogenic potential of PSF-TFE3 became evident by stable expression of PSF-TFE3 in NIH-3T3 mouse fibroblast cells, which leads to the acquisition of anchorage-independent growth as revealed by soft agar assay. In addition, the expression of PSF-TFE3 in normal renal proximal tubular epithelial cells from where such tumors originate leads to dedifferentiation and loss of some key functional proteins, which may reflect an initial step in the multistep process of tumor development. This suggests that the expression of PSF-TFE3 in renal epithelial cells plays an important role in the initiation and maintenance of oncogenic phenotype in papillary RCC.