The t(2;13) and t(1;13) translocations of alveolar rhabdomyosarcoma (ARMS) result in chimeric PAX3-FKHR or PAX7-FKHR transcription factors, respectively. In each chimera, a PAX DNA-binding domain is fused to the C-terminal FKHR transactivation domain. Previously we demonstrated that PAX3-FKHR is more potent than PAX3 because the FKHR transactivation domain is resistant to repression mediated by the PAX3 N-terminus. Here we test the hypothesis that the cis-acting repression domain is a conserved feature of PAX3 and PAX7 and that PAX7-FKHR gains function similarly. Using PAX-specific DNA-binding sites, we found that PAX7 was virtually inactive, while PAX7-FKHR exhibited activity 600-fold above background and was comparable to PAX3-FKHR. Deletion analysis showed that the transactivation domains of PAX7 and PAX7-FKHR are each more potent than either full-length protein, and resistance to cis-repression is responsible for the PAX7-FKHR gain of function. Further deletion mapping and domain swapping experiments with PAX3 and PAX7 showed that their transactivation domains exhibit subtle dose-dependent differences in potency, likely due to regions of structural divergence; while their repression domains are structurally and functionally conserved. Thus, the data support the hypothesis and demonstrate that PAX3 and PAX7 utilize a common gain of function mechanism in ARMS.