AML-1B is a hematopoietic transcription factor that is functionally inactivated by multiple chromosomal translocations in human acute myeloblastic and B-cell lymphocytic leukemias. The t(8;21)(q22;q22) translocation replaces the C terminus, including the transactivation domain of AML-1B, with ETO, a nuclear protein of unknown function. We previously showed that AML-1-ETO is a dominant inhibitor of AML-1B-dependent transcriptional activation. Here we demonstrate that AML-1-ETO also inhibits C/EBP-alpha-dependent activation of the myeloid cell-specific, rat defensin NP-3 promoter. AML-1B bound the core enhancer motifs present in the NP-3 promoter and activated transcription approximately sixfold. Similarly, C/EBP-alpha bound NP-3 promoter sequences and activated transcription approximately sixfold. Coexpression of C/EBP-alpha with AML-1B or its family members, AML-2 and murine AML-3, synergistically activated the NP-3 promoter up to 60-fold. The t(8;21) product, AML-1-ETO, repressed AML-1B-dependent activation of NP-3 and completely inhibited C/EBP-alpha-dependent activity as well as the synergistic activation. In contrast, the inv(16) product, which indirectly targets AML family members by fusing their heterodimeric DNA binding partner, CBF-beta, to the myosin heavy chain, inhibited AML-1B but not C/EBP-alpha activation or the synergistic activation. AML-1-ETO and C/EBP-alpha were coimmunoprecipitated and thus physically interact in vivo. Deletion mutants demonstrated that the C terminus of ETO was required for AML-1-ETO-mediated repression of the synergistic activation but not for association with C/EBP-alpha. Finally, overexpression of AML-1-ETO in myeloid progenitor cells prevented granulocyte colony-stimulating factor-induced differentiation. Thus, AML-1-ETO may contribute to leukemogenesis by specifically inhibiting C/EBP-alpha- and AML-1B-dependent activation of myeloid promoters and blocking differentiation.