Human translocation liposarcoma (TLS)-CCAAT/enhancer binding protein (C/EBP) homologous protein (CHOP) is a fusion oncoprotein found specifically in a malignant tumor of adipose tissue and results from a t(12;16) translocation that fuses the amino-terminal part of TLS to the entire coding region of CHOP. Being that CHOP is a member of the C/EBP transcription factor family, proteins that comprise part of the adipocyte differentiation machinery, we examined whether TLS-CHOP blocked adipocyte differentiation by directly interfering with C/EBP function. Using a single-step retroviral infection protocol, either wild-type or mutant TLS-CHOP were co-expressed along with C/EBPbeta in naïve NIH3T3 cells, and their ability to inhibit C/EBPbeta-driven adipogenesis was determined. TLS-CHOP was extremely effective at blocking adipocyte differentiation when expressed at a level comparable to that observed in human myxoid liposarcoma. This effect of TLS-CHOP required a functional leucine zipper domain and correlated with its ability to heterodimerize with C/EBPbeta and inhibit C/EBPbeta DNA binding and transactivation activity in situ. In contrast, the TLS-CHOP basic region was dispensable, making it unlikely that the inhibitory effect of TLS-CHOP is attributable to unscheduled gene expression resulting from TLS-CHOP's putative transactivation activity. Another adipogenic transcription factor, PPARgamma2, was able to rescue TLS-CHOP-inhibited cells, indicating that TLS-CHOP interferes primarily with C/EBPbeta-driven adipogenesis and not with other requisite events of the adipocyte differentiation program. Together, the results demonstrate that TLS-CHOP blocks adipocyte differentiation by directly preventing C/EBPbeta from binding to and transactivating its target genes. Moreover, they provide strong support for the thesis that a blockade to normal differentiation is an important aspect of the cancer process.