The (11;22) chromosomal translocation found in Ewing's sarcoma and related tumors fuses the amino terminus of the EWS protein to the DNA-binding domain of the FLI-1 transcription factor. In contrast to normal FLI-1, the EWS/FLI-1 fusion transforms NIH3T3 cells and this activity requires both EWS and FLI-1 sequences. Reporter gene assays showed that the portion of EWS fused to FLI-1 encodes a strong transcriptional activation domain. To determine whether this function is necessary for transformation by EWS/FLI-1, deletion analysis of EWS was performed. We found that the EWS domain could be functionally subdivided into two regions: (i) an amino terminal domain (domain A) which transforms efficiently when fused to FLI-1 but has little transactivation activity in a model system and (ii) a distal region (domain B) which transactivates efficiently but transforms less efficiently when fused to FLI-1. Replacement of the EWS domain with known heterologous transcriptional activation domains yielded chimeric FLI-1 fusions that in some instances could transform NIH3T3 cells. Finally we demonstrate that EWS/FLI-1 and related FLI-1 chimeras are able to cooperate with another transcription factor to activate a model reporter gene. These results further demonstrate that EWS/FLI-1 is an aberrant transcription factor and suggest that the EWS domain mediates important protein-protein interactions with other factors resulting in the transcriptional modulation of target genes.