EVI1, located at chromosome band 3q26, encodes a 1051 amino acid zinc finger protein inappropriately expressed in the leukemic cells of 2-5% of acute myeloid leukemia (AML) and myelodysplastic syndrome (MDS) patients. The activation of EVI1 often follows a chromosomal rearrangement involving band 3q26, and the two most frequent rearrangements are the t(3;3)(q21;q26) and the inv(3)(q21q26). EVI1 exists also as a longer protein that includes 188 additional amino acids at the N-terminus, named MDS1/EVI1. Both genes are expressed at very low levels in the normal bone marrow. The genomic region between the first coding exon of MDS1/EVI1 and the first coding exon of EVI1 is 150-300 kb. The majority of the chromosomal breakpoints at the 5' end of EVI1 in the t(3;3) resulting in EVI1 activation have been mapped in this region. As a consequence of the t(3;3), the cell would be unable to express MDS1/EVI1, although it would express EVI1. We have compared the transcriptional activity of MDS1/EVI1 and EVI1, and we show that MDS1/EVI1 is a strong activator of promoters containing the AGATA motif, whereas EVI1 is a repressor. In addition, whereas EVI1 represses activation by the GATA-1 erythroid factor, MDS1/EVI1 does not, and is itself repressed by EVI1. By gene fusion to the DNA-binding domain of Gal4, we further show that the activation properties of MDS1/EVI1 are restricted to an acidic segment encoded by the second and third exons in the 5' untranslated region of EVI1. We have also examined the relative expression of the two genes in normal bone marrow and in the bone marrow of leukemia patients with 3q26 rearrangements. Our results indicate that the rearrangements at 3q26 affect expression of EVI1, but not of MDS1/EVI1. We propose that rearrangements at 3q26 involving EVI1 could result in leukemia by a two-step process involving first transcriptional disruption of MDS1/EVI1, and next by inappropriately activating expression of EVI1.