The t(8;21)-encoded AML1-ETO chimeric product is believed to be causally involved in up to 15% of acute myelogenous leukemias through an as yet unknown mechanism. To directly investigate the role of AML1-ETO in leukemogenesis, we used gene targeting to create anAML1-ETO “knock-in” allele that mimics the t(8;21). Unexpectedly, embryos heterozygous for AML1-ETO(AML1-ETO/+) died around E13.5 from a complete absence of normal fetal liver–derived definitive hematopoiesis and lethal hemorrhages. This phenotype was similar to that seen following homozygous disruption of either AML1 orCBFβ. However, in contrast to AML1- or CBFβ-deficient embryos, fetal livers from AML1-ETO/+ embryos contained dysplastic multilineage hematopoietic progenitors that had an abnormally high self-renewal capacity in vitro. To further document the role of AML1-ETO in these growth abnormalities, we used retroviral transduction to express AML1-ETO in murine adult bone marrow–derived hematopoietic progenitors. AML1-ETO–expressing cells were again found to have an increased self-renewal capacity and could be readily established into immortalized cell lines in vitro. Taken together, these studies suggest that AML1-ETO not only neutralizes the normal biologic activity of AML1 but also directly induces aberrant hematopoietic cell proliferation.