The chromosomal translocation t(3;21)(q26;q22), which is found in blastic crisis in chronic myelogenous leukemias and myelodysplastic syndrome-derived leukemias, produces AML1/Evi-1 chimeric transcription factor and is thought to play important roles in acute leukemic transformation of hemopoietic stem cells. We report here the functional analyses of AML1/Evi-1. It was revealed that AML1/Evi-1 itself does not alter the transactivation level through mouse polyomavirus enhancer-binding protein 2 (PEBP2; PEA2) sites (binding site of AML1) but dominantly suppresses the transactivation by intact AML1, which is assumed to be a stimulator of myeloid cell differentiation. DNA-binding competition is a putative mechanism of such dominant negative effects of AML1/Evi-1 because it binds to PEBP2 sites with higher affinity than AML1 does. Furthermore, AML1/Evi-1 stimulated c-fos promoter transactivation and increased AP-1 activity, as Evi-1 (which is not normally expressed in hemopoietic cells) did. Experiments using deletion mutants of AML1/Evi-1 showed that these two functions are mutually independent because the dominant negative effects on intact AML1 and the stimulation of AP-1 activity are dependent on the runt domain (DNA-binding domain of AML1) and the zinc finger domain near the C terminus, respectively. Furthermore, we showed that AML1/Evi-1 blocks granulocytic differentiation, otherwise induced by granulocyte colony-stimulating factor, of 32Dcl3 myeloid cells. It was also suggested that both AML1-derived and Evi-1-derived portions of the fusion protein play crucial roles in this differentiation block. We conclude that the leukemic cell transformation in t(3;21) leukemias is probably caused by these dual functions of AML1/Evi-1 chimeric protein.