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.