A common chromosomal translocation in acute myeloid leukemia (AML) involves the AML1 (acute myeloid leukemia 1, also called RUNX1, core binding factor protein (CBFα), and PEBP2αB) gene on chromosome 21 and the ETO (eight-twenty one, also called MTG8) gene on chromosome 8. This translocation generates an AML1-ETO fusion protein. t (8; 21) is associated with 12% of de novo AML cases and up to 40% in the AML subtype M2 of the French–American-British classification. Furthermore, it is also reported in a small portion of M0, M1, and M4 AML samples. Despite numerous studies on the function of AML1-ETO, the precise mechanism by which the fusion protein is involved in leukemia development is still not fully understood. In this review, we will discuss structural aspects of the fusion protein and the accumulated knowledge from in vitro analyses on AML1-ETO functions, and outline putative mechanisms of its leukemogenic potential.