The E2a-Pbx1 oncoprotein contains the transactivation domain of E2a joined to the DNA-binding homeodomain (HD) of Pbx1. In mice, E2a-Pbx1 transforms T lymphoblasts and fibroblasts and blocks myeloblast differentiation. Pbx1 and E2a-Pbx1 bind DNA as heterodimers with other HD proteins whose expression is tissue specific. While the transactivation domain of E2a is required for all forms of transformation, DNA binding by the Pbx1 HD is essential for blocking myeloblast differentiation but dispensable for fibroblast or T-lymphoblast transformation. These properties suggest (i) that E2a-Pbx1 causes cellular transformation by activating gene transcription, (ii) that transcription of E2a-Pbx1 target genes is normally regulated by ubiquitous Pbx proteins and tissue-specific partners, and (iii) that DNA-binding mutants of E2a-Pbx1 activate a subset of all gene targets. To test these predictions, genes induced in NIH 3T3 fibroblasts by E2a-Pbx1 were identified and examined for tissue- and stage-specific expression and their differential abilities to be upregulated by E2a-Pbx1 in NIH 3T3 fibroblasts and myeloblasts and by a DNA-binding mutant of E2a-Pbx1 in NIH 3T3 cells. Of 12 RNAs induced by E2a-Pbx1, 4 encoded known proteins (a J-C region of the immunoglobulin kappa light chain, natriuretic peptide receptor C, mitochondrial fumarase, and the 3',5'-cyclic nucleotide phosphodiesterase, PDE1A) and 5 encoded new proteins related to angiogenin, ion channels, villin, epidermal growth factor repeat proteins, and the human 2.19 gene product. Expression of many of these genes was tissue specific or developmentally regulated, and most were not expressed in fibroblasts, indicating that E2a-Pbx1 can induce ectopic expression of genes associated with lineage-specific differentiation.