Acute myeloid leukaemia (AML) is a major haematopoietic malignancy characterized by the proliferation of a malignant clone of myeloid progenitor cells. A reciprocal translocation, t(8;21)(q22;q22), observed in the leukaemic cells of approximately 40% of patients with the M2 subtype of AML disrupts both the AML1 (CBFA2) gene on chromosome 21 and the ETO (MTG8) gene on chromosome 8 (refs 3-5). A chimaeric protein is synthesized from one of the derivative chromosomes that contains the N terminus of the AML1 transcription factor, including its DNA-binding domain, fused to most of ETO, a protein of unknown function. We generated mice that mimic human t(8;21) with a "knock-in' strategy. Mice heterozygous for an AML1-ETO allele (AML1-ETO/+) die in midgestation from haemorrhaging in the central nervous system and exhibit a severe block in fetal liver haematopoiesis. This phenotype is very similar to that resulting from homozygous disruption of the AML1 (Cbfa2) or Cbfb genes, indicating that AML1-ETO blocks normal AML1 function. However, yolk sac cells from AML1-ETO/+ mice differentiated into macrophages in haematopoietic colony forming unit (CFU) assays, unlike Cbfa2-/- or Cbfb-/-cells, which form no colonies in vitro. This indicates that AML1-ETO may have other functions besides blocking wild-type AML1, a property that may be important in leukaemogenesis.