The TAL1 gene is transcriptionally activated by chromosomal translocation in the most common genetic lesion associated with T-cell acute lymphoblastic leukemia. TAL1 encodes a bHLH protein that exhibits sequence-specific DNA binding activity when it forms dimers with another bHLH protein such as E2A. We show that ectopic expression of TAL1 blocks the ability of the bHLH gene myogenin to induce myotube differentiation in C3H10T1/2 cells. Cotransfection of TAL1 with either myogenin or E2-5 suppresses the transcriptional activation function of each gene on its respective reporter constructs. TAL1 was as effective as Id in both transcriptional suppression and inhibition of differentiation. Deletion of the C-terminal domain of TAL1 reduces or eliminates its ability to suppress transcription while preserving the bHLH domain that determines the sequence-specificity of DNA binding. These data suggest that the C-terminal domain of TAL1 may directly mask the transactivation domain of E2A-related proteins. Since E2A-related genes are involved in lymphocyte differentiation, the dominant inhibition of E2A-related proteins may be the primary mechanism by which the TAL1 oncogene promotes leukemia.