Although genetic abnormalities associated with hematological malignancies are readily identified, the natural history of human leukemia cannot be observed because initiating and subsequent transforming events occur before clinical presentation. Furthermore, it has not been possible to study leukemogenesis in vitro as normal human cells do not spontaneously transform. Thus, the nature and sequence of genetic changes required to convert human hematopoietic cells into leukemia cells have never been directly examined. We have developed a system where the first step in the leukemogenic process is an engineered disruption of differentiation and self-renewal due to expression of the TLS-ERG oncogene, followed in some cases by overexpression of hTERT. In two of 13 experiments, transduced cells underwent step-wise transformation and immortalization through spontaneous acquisition of additional changes. The acquired karyotypic abnormalities and alterations including upregulation of Bmi-1 and telomerase all occur in acute myeloid leukemia (AML), establishing the relevance of this system. One resultant cell line studied in depth exhibits cellular properties characteristic of AML, notably a hierarchical organization initiated by leukemic stem cells that differentiate abnormally. These findings provide direct evidence for multiple cooperating events in human leukemogenesis, and provide a foundation for studying the genetic changes that occur during leukemic initiation and progression.