Translocation (8;21) is associated with few typical morphological features and favorable prognosis. All patients of AML and MDS with increased blasts (N = 35) according to FAB criteria, presenting (between Jan 2004 to June 2005) to the Department of Hematology, AIIMS were studied. RT-PCR was done for the AML1-ETO fusion transcript in all cases. Overall incidence of AML1-ETO was 28.57% and no correlation was found between AML1-ETO positivity and clinical or hematological parameters except for a direct correlation with absolute blast count (ABC) (a lower ABC in the AML1-ETO positive cases). Interestingly, 1/3 MDS cases were positive for the same fusion transcript and thus, it appears worthwhile to look for AML1-ETO in all cases of MDS with increased blasts. Objective morphological evaluation using a scoring system based on morphological features was not helpful in predicting positivity for AML1-ETO. The effect of this translocation on long-term survival could not be determined by the present study.