The t(6;22)(p21;q12) translocation associated with human bone and soft-tissue tumours results in a chimaeric molecule fusing the NTD (N-terminal domain) of the EWS (Ewing's sarcoma) gene to the CTD (C-terminal domain) of the Oct-4 (octamer-4) embryonic gene. Since the N-terminal domains of EWS and Oct-4 are structurally different, in the present study we have assessed the functional consequences of the EWS-Oct-4 fusion. We find that this chimaeric gene encodes a nuclear protein which binds DNA with the same sequence specificity as the parental Oct-4 protein. Comparison of the transactivation properties of EWS-Oct-4 and Oct-4 indicates that the former has higher transactivation activity for a known target reporter gene containing Oct-4 binding. Deletion analysis of the functional domains of EWS-Oct-4 indicates that the EWS (NTD), the POU domain and the CTD of EWS-Oct-4 are necessary for full transactivation potential. EWS-Oct-4 induced the expression of fgf-4 (fibroblast growth factor 4) and nanog, which are potent mitogens as well as Oct-4 downstream target genes whose promoters contain potential Oct-4-binding sites. Finally, ectopic expression of EWS-Oct-4 in Oct-4-null ZHBTc4 ES (embryonic stem) cells resulted in increased tumorigenic growth potential in nude mice. These results suggest that the oncogenic effect of the t(6;22) translocation is due to the EWS-Oct-4 chimaeric protein and that fusion of the EWS NTD to the Oct-4 DNA-binding domain produces a transforming chimaeric product.