Rhabdomyosarcoma is the most frequent soft tissue sarcoma in the pediatric population. Two main histopathologic variants have been described, embryonal (ERMS) and alveolar (ARMS), which demonstrate clinical and genetic differences. In particular, most ARMS but not ERMS tumors are characterized by the presence of recurrent chromosomal translocations, which have been cytogenetically defined as t(2;13)(q35;q14) and t(1;13)(p36;q14). These translocations form PAX3-FKHR and PAX7-FKHR gene fusions, which encode chimeric transcription factors. These chimeric proteins are hypothesized to generate a novel transcriptional program in the target cell, thereby contributing to multiple aspects of ARMS tumorigenesis. This review highlights recent advances in numerous areas of biomedical investigation that are providing new insights into the biology, molecular pathology, and translational science of ARMS: the identification of downstream targets of PAX3-FKHR and collaborating events in the process of tumorigenesis and metastasis; generation of animal models based on the gene fusion and collaborating events; development of new assays for diagnosis, prognosis, and detection of minimal disseminated disease; and exploration of immune recognition of this tumor and the fusion protein. These findings highlight the continued importance of the fusion proteins in understanding the biology of this tumor and developing improved diagnostics for this tumor, and have led to the initiation of efforts to explore therapeutic strategies based on the increasing understanding of the biology of these fusion proteins.