Human cancer cells frequently harbor chromosomal translocations that create chimeric fusion genes. The t(2;13) translocation is characteristic of the pediatric muscle tumor, alveolar rhabdomyosarcoma, and produces the chimeric transcription factor, PAX3-FOXO1, that contains the DNA binding elements of PAX3 and the transcriptional activation domain of FOXO1. Experiments designed to determine how PAX3-FOXO1 expression contributes to the development of muscle cell-derived tumors resulted in the discovery that the fusion protein misregulates gene expression and interrupts myogenic differentiation through a unique gain of function mechanism. These results yield new insight into how tumor-associated genetic alterations increase the likelihood of cancer formation and may lead to new therapeutic approaches.