Ewing's sarcoma is a childhood bone tumour with poor prognosis, most commonly associated with a t(11;22)(q24;q12) reciprocal translocation that fuses the EWS and FLI-1 genes, resulting in the production of an aberrant chimeric transcription factor EWS/FLI-1. To elucidate the mechanisms by which EWS/FLI-1 mediates transformation in mouse models, we have generated a murine Ews/Fli-1 fusion protein. We demonstrate that this protein transforms fibroblast cells in vitro similar to human EWS/FLI-1 as demonstrated by serum and anchorage-independent growth, the formation of tumours in nude mice and elevation of the oncogenic marker c-myc. Furthermore, transformation of these cells was inhibited by a specific repressor, KRAB/FLI-1. The KRAB/FLI-1 repressor also suppressed the tumorigenic phenotype of a human Ewing's sarcoma cell line. These findings suggest that the transformed phenotype of Ewing's sarcoma cells can be reversed by using the sequence-specific FLI-1-DNA-binding domain to target a gene repressor domain. The inhibition of EWS/FLI-1 is the first demonstration of the KRAB domain suppressing the action of an ETS factor. This approach provides potential avenues for the elucidation of the biological mechanisms of EWS/FLI-1 oncogenesis and the development of novel therapeutic strategies.