TAL1 is a basic helix-loop-helix (bHLH) protein involved in hematopoietic development. In T cell acute lymphoblastic leukemic cells, TAL1 is aberrantly overexpressed and is thought to contribute to oncogenesis. To identify proteins that interact with TAL1 in mediating leukemogenesis, we used TAL1 as a bait in a two-hybrid interaction screen, and isolated a cDNA clone that encodes a unique GTP binding protein, DRG. The interaction between DRG and TAL1 was confirmed both in vitro and in vivo. DRG was also shown to bind in vitro to two TAL1-related proteins, TAL2 and Lyl1. Mutational analyses showed that the HLH domain of TAL1 was necessary and sufficient for its interaction with the C-terminus of DRG. Furthermore, while DRG and E47 compete to interact with TAL1, TAL1 binds to DRG and E47 in a mutually exclusive manner. In rat embryonic fibroblast transformation assays, DRG stimulated the cotransforming activity of c-myc and ras. Based on these results, DRG appears to be a potential target for TAL-like oncoproteins.