During differentiation in vitro, Embryonic Stem (ES) cells generate both primitive erythroid and definitive myeloid lineages in a process that mimics hematopoiesis in the mammalian yolk sac. To investigate leukemic transformation of these embryonic hematopoietic progenitors, we infected differentiating cultures of ES cells with the Chronic Myeloid Leukemia-specific BCR/ABL oncoprotein. Following a period of liquid culture, we isolated two transformed subclones, EB57 and EB67, that retained characteristics of embryonic hematopoietic progenitors and induced a fatal leukemia in mice characterized by massive splenomegaly and granulocytosis. Histopathology of the spleen revealed an abundance of undifferentiated blast-like cells. Investigation of the clonal origins of the granulocytes in the peripheral blood demonstrated that the injected donor cells contributed modestly to the granulocyte population while the majority were host-derived. EB57 secretes IL-3 and unidentified cytokines that can stimulate autocrine and paracrine cell proliferation, presumably accounting for the reactive granulocytosis in diseased mice. These BCR/ABL transformed hematopoietic derivatives of ES cells recapitulate the relationship of BCR/ABL expression to IL-3 production that has been described for primitive hematopoietic progenitors from human CML patients, and illustrates the potential for autocrine and paracrine effects of BCR/ABL-infected cells in murine models.