The papillary renal cell carcinoma-associated t(X;1)(p11;q21) leads to fusion of the transcription factor TFE3 gene on the X-chromosome to a novel gene, PRCC, on chromosome 1. As a result, two putative fusion proteins are formed: PRCCTFE3, which contains all known domains for DNA binding, dimerization, and transactivation of the TFE3 protein, and the reciprocal product TFE3PRCC. Upon transfection into COS cells, both wild type and fusion proteins were found to be located in the nucleus. When comparing the transactivating capacities of these (fusion) proteins, significant differences were noted. PRCCTFE3 acted as a threefold better transactivator than wild type TFE3 both in a TFE3-specific and in a general (Zebra) reporter assay. In addition, PRCC and the two fusion proteins were found to be potent transactivators in the Zebra reporter assay. We propose that, as a result of the (X;1) translocation, fusion of the N-terminal PRCC sequences to TFE3 alters the transactivation capacity of the transcription factor thus leading to aberrant gene regulation and, ultimately, tumor formation.