Pediatric alveolar rhabdomyosarcoma is characterized by a chromosomal translocation that fuses parts of the PAX3 and FKHR genes. PAX3 codes for a transcriptional regulator that controls developmental programs, and FKHR codes for a forkhead-winged helix protein, also a likely transcription factor. The PAX3-FKHR fusion product retains the DNA binding domains of the PAX3 protein and the putative activator domain of the FKHR protein. The PAX3-FKHR protein has been shown to function as a transcriptional activator. Using the RCAS retroviral vector, we have introduced the PAX3-FKHR gene into chicken embryo fibroblasts. Expression of the PAX3-FKHR protein in these cells leads to transformation: the cells become enlarged, grow tightly packed and in multiple layers, and acquire the ability for anchorage-independent growth. This cellular transformation in vitro will facilitate studies on the mechanism of PAX3-FKHR-induced oncogenesis.