Rhabdomyosarcoma is a family of myogenic soft tissue tumors subdivided into two main subtypes: alveolar (ARMS) and embryonal (ERMS). ARMS is characterized by a frequent 2;13 chromosomal translocation that creates a PAX3‐FKHR fusion transcription factor. To identify downstream targets of PAX3‐FKHR, we introduced an inducible form of PAX3‐FKHR into human RD ERMS cells. Microarray analysis identified 39 genes (29 upregulated and 10 downregulated) that are modulated by PAX3‐FKHR in RD cells and differentially expressed between ERMS and PAX3‐FKHR‐positive ARMS tumors. Functional annotation demonstrated that genes involved in regulation of transcription and development, particularly neurogenesis, are represented in this group. MYCN was one notable neural‐related transcription factor‐encoding gene identified in this set, and its regulation by PAX3‐FKHR was further confirmed at the RNA and protein levels. The findings of cycloheximide inhibition and time‐course studies are consistent with the hypothesis that the PAX3‐FKHR protein acts directly on the MYCN gene at the transcriptional level. Functional studies established that MYCN cooperates with PAX3‐FKHR to enhance oncogenic activity. In conclusion, we identified a selected set of biologically relevant genes modulated by PAX3‐FKHR, and demonstrated that PAX3‐FKHR contributes to the expression of MYCN and in turn MYCN collaborates with PAX3‐FKHR in tumorigenesis. © 2008 Wiley‐Liss, Inc.