The t(1;19) chromosomal translocation of pediatric pre-B cell lymphoblastic leukemia produces the E2A-PBX1 oncogene, which can transform fibroblasts, induce acute myeloid leukemia and T cell lymphomas in mice, and immortalize factor-dependent myeloid progenitors in cultured marrow. The homeodomain of Pbx1 binds ATCAATCAA, and while Pbx1 does not activate transcription through this motif, E2A-Pbx1 induces constitutive transactivation. Here, we investigate whether DNA-binding by Pbx1 or transcriptional activation by E2A are essential for the transforming abilities of E2A-Pbx1. Elimination of DNA-binding in E2A-Pbx1 by point mutations in the Pbx1 homeodomain or by large deletions that removed the Pbx1 homeodomain and carboxyl terminus did not alter ability of E2A-Pbx1 to induce focus-formation in fibroblast, even though these mutations completely eliminated its ability to activate transcription through the PRS. These same DNA-binding mutations, however, severely impaired or eliminated the ability of E2A-Pbx1 to immortalize factor-dependent myeloid progenitors in marrow cultures. Elimination of the first transcriptional activation domain of E2A abolished both fibroblast and myeloid transforming activities while elimination of the second altered neither of these activities. We conclude that DNA-binding is important for the ability of E2A-Pbx1 to disrupt differentiation, as evidenced in myeloblast immortalization, but dispensable for its ability to induce focus-formation, and that the aminoterminal domain of E2A, which strongly activates transcription, is essential for both transforming activities.