The prostate-specific gene, TMPRSS2, is fused with the transcription factor gene, ERG in a high proportion of prostate cancers. However, the clinical significance of TMPRSS2:ERG gene fusion among prostate cancer patients is unknown. We assayed for the presence of the TMPRSS2:ERG gene fusion product among 26 patients who underwent surgery for clinically localized prostate cancer using RT-PCR and direct DNA sequencing, and evaluated its prognostic significance. All 26 patients had cancers of the same histologic grade (Gleason score 7). The fusion protein was present within prostate cancer tumor cells in eleven patients (42.3%). Nine patients experienced biochemical disease relapse (elevated PSA) after a mean follow-up of 12 months (range 1 to 48 months). Patients with the fusion protein had a significantly higher rate of recurrence (5-year recurrence rate 79.5%) compared to patients who lacked the fusion protein (five-year recurrence rate 37.5%, p = 0.009). The adjusted hazard ratio for disease relapse for patients with the fusion protein was 7.1 (95% C.I.: 1.1-45, p = 0.03) compared to patients without the fusion protein. In multivariate analysis, the presence of gene fusion was the single most important prognostic factor. Our study indicates that the expression of TMPRSS2:ERG fusion gene among prostate cancer patients treated with surgery is a strong prognostic factor for disease relapse, and may have important clinical implications.