We have determined that PAX3 (found previously to be mutated in Waardenburg syndrome) is the chromosome 2 locus rearranged by the t(2;13)(q35;q14) translocation of the paediatric solid tumour alveolar rhabdomyosarcoma. The rearrangement breakpoints occur within an intron downstream of the paired box and homeodomain-encoding regions. Upstream PAX3 sequences hybridize to a novel transcript in t(2;13)-containing lines. Cloning and characterization of this novel transcript indicate that the translocation juxtaposes the PAX3 DNA binding elements with chromosome 13 sequences, suggesting formation of a hybrid transcription factor. Therefore, PAX3 gene alterations are associated with two completely unrelated human diseases.