Rhabdomyosarcoma (RMS) is the most common soft tissue sarcoma of childhood and adolescence. Despite advances in therapy, patients with a histologic variant of RMS known as alveolar (aRMS) have a 5-year survival rate of <30%. aRMS tissues exhibit a number of genetic changes, including loss-of-function of the p53 and Rb tumor suppressor pathways, amplification of MYCN, stabilization of telomeres, and most characteristically, reciprocal translocation of loci involving the PAX and FKHR genes, generating the PAX7-FKHR or PAX3-FKHR fusion proteins. We previously showed that PAX3-FKHR expression in primary human myoblasts, cells that can give rise to RMS, cooperated with loss of p16^INK4A to promote extended proliferation. To better understand the genetic events required for aRMS formation, we then stepwise converted these cells to their transformed counterpart. PAX3-FKHR, the catalytic unit of telomerase hTERT, and MycN, in cooperation with down-regulation of p16^INK4A/p14^ARF expression, were necessary and sufficient to convert normal human myoblasts into tumorigenic cells that gave rise to aRMS tumors. However, the order of expression of these transgenes was critical, as only those cells expressing PAX3-FKHR early could form tumors. We therefore suggest that the translocation of PAX3 to FKHR drives proliferation of myoblasts, and a selection for loss of p16^INK4A/p14^ARF. These early steps, coupled with MycN amplification and telomere stabilization, then drive the cells to a fully tumorigenic state. [Cancer Res 2008;68(23):9583–8]