Structural alterations of the Wilms' tumor locus (WT1) at 11p13 have been implicated in the etiology of two human cancers--Wilms' tumor (WT), a pediatric renal malignancy, and Desmoplastic Small Round Cell Tumor (DSRCT), an aggressive cancer of the abdominal serosal lining with predilection for male adolescents. Germline mutations within the WT1 tumor suppressor gene predispose to WT and are associated with congenital malformations of the urogenital system, and somatic mutations are associated with initiation of transformation in WTs. In DSRCT, a recurrent translocation, t(11;22)(p13;q12), fuses the amino terminal domain of the EWS1 gene product to three of the four WT1 zinc fingers. Two EWS/WT1 isoforms are generated as a result of an alternative splicing event between zinc fingers III and IV, inserting or removing three amino acids (+/- KTS). We demonstrate that introduction of EWS/WT1(-KTS) into NIH3T3 cells causes their tumorigenic transformation as determined by: formation of transformed foci on a monolayer of cells; anchorage-independent growth; and tumor formation in nude mice. EWS/WT1(+KTS) showed no transforming potential in these assays. These results indicate the oncogenic effect of the t(11;22) translocation is mediated by the EWS/WT1(-KTS) isoform and that fusion of the EWS amino terminal domain to the WT1 DNA binding domain produces a chimeric product showing a gain of function.