Acute lymphoblastic leukemia (ALL) is a clonal disease that evolves through the accrual of genetic rearrangements and/or mutations within the dominant clone. The TEL-AML1 (ETV6-RUNX1) fusion in precursor-B (pre-B) ALL is the most common genetic rearrangement in childhood cancer; however, the cellular origin and the molecular pathogenesis of TEL-AML1-induced leukemia have not been identified. To study the origin of TEL-AML1-induced ALL, we generated transgenic zebrafish expressing TEL-AML1 either ubiquitously or in lymphoid progenitors. TEL-AML1 expression in all lineages, but not lymphoid-restricted expression, led to progenitor cell expansion that evolved into oligoclonal B-lineage ALL in 3% of the transgenic zebrafish. This leukemia was transplantable to conditioned wild-type recipients. We demonstrate that TEL-AML1 induces a B cell differentiation arrest, and that leukemia development is associated with loss of TEL expression and elevated Bcl2/Bax ratio. The TEL-AML1 transgenic zebrafish models human pre-B ALL, identifies the molecular pathways associated with leukemia development, and serves as the foundation for subsequent genetic screens to identify modifiers and leukemia therapeutic targets.