Although the significance of cathepsin G (CTSG) in host defense has been intensively investigated, little is known about its potential roles in granulopoiesis or leukemogenesis. We report here that CTSG is directly targeted and suppressed by AML1-ETO in t(8;21) acute myeloid leukemia (AML). Luciferase assays demonstrate that the CTSG promoter is strongly transactivated by AML1 and the AML1-dependent transactivation is suppressed by AML1-ETO. We also define a novel regulatory mechanism by which AML1-ETO-mediated transrepression requires both AML1-ETO and AML1 binding at adjacent sites, instead of the replacement of AML1 by AML1-ETO, and wild-type AML1 binding is a prerequisite for the repressive effect caused by AML1-ETO. Further evidence shows that CTSG, as a hematopoietic serine protease, can degrade AML1-ETO both in vitro and in vivo. Restoration of CTSG induces partial differentiation, growth inhibition and apoptosis in AML1-ETO-positive cells. In addition to t(8;21) AML, CTSG downregulation is observed in AML patients with other cytogenetic/genetic abnormalities that potentially interrupt normal AML1 function, that is, inv(16) and EVI1 overexpression. Thus, the targeting and suppression of CTSG by AML1-ETO in t(8;21) AML may provide a mechanism for leukemia cells to escape from the intracellular surveillance system by preventing degradation of foreign proteins.