Alveolar rhabdomyosarcoma (ARMS) is consistently associated with the characteristic translocations t(2;13)(q35;q14) and t(1;13)(p36;q14), which encode for the PAX3-FKHR and PAX7-FKHR fusion oncoproteins respectively. We have investigated the relationship between PAX3-FKHR expression and ARMS histogenesis in primary tumors and cell culture systems. In a blinded histological review of discrepant primary tumors in which there was PAX3-FKHR expression but embryonal histology, we found small areas of alveolar histology in 6 of 11 cases. This suggests that histology alone may under-represent the association between PAX3-FKHR and ARMS, and we investigated this link by examining the effect of ectopic PAX3-FKHR expression on RMS cells. Two cell lines, RD and HX170C, were stably transfected with a PAX3-FKHR expression construct. In cloned transfectants derived from both lines, PAX3-FKHR expression resulted in increased proliferative rate in vitro and promoted cell growth in the absence of added growth factors. Tumors that formed as xenografts in immunodeficient mice were faster growing, more locally invasive, and had a denser, more pleomorphic architecture than untransfected or empty vector transfected tumors. The characteristic clefts and alveolar spaces of ARMS, however, were not seen. In contrast, tumors grown as xenografts from individual clones derived from ARMS cell lines showed all of the classical morphological features of ARMS suggesting divergence in vivo from precursor cells propagated in culture.