The chromosome translocations generating PAX3FOXO1 and PAX7FOXO1 chimeric proteins are the primary hallmarks of the paediatric cancer, Alveolar Rhabdomyosarcoma (ARMS).Despite the ability of these transcription factors to remodel chromatin landscapes and promote the expression of tumour driver genes, they only inefficiently promote malignant transformation in vivo. The reason for this is unclear. To address this, we developed an in ovo model to follow the response of spinal cord progenitors to PAXFOXO1s. Our data demonstrate that PAXFOXO1s, but not wild-type PAX3 and PAX7, trigger the trans-differentiation of neural cells into ARMS-like cells with myogenic characteristics. In parallel expression of PAXFOXO1s remodels the neural pseudo-stratified epithelium into a cohesive mesenchyme capable of tissue invasion. Surprisingly, gain for PAXFOXO1s, as for wild-type PAX3/7, reduces the levels of CDK-CYCLIN activity and arrests cells in G1. Introduction of CYCLIN D1 or MYCN overcomes PAXFOXO1s mediated cell cycle inhibition and promotes tumour growth. Together, our findings reveal a mechanism underpinning the apparent limited oncogenicity of PAXFOXO1 fusion transcription factors and support a neural origin for ARMS.We deeply thank the ImagoSeine core facility of Institut Jacques Monod, a member of France-BioImaging (ANR-10-INBS-04) and certified IBiSA. We thank Griselda Wentzinger and Magali Fradet for performing cell sorting at ImagoSeine Institut Jacques Monod platform. We are grateful to the people who have provided us with useful tools. We received plasmids from