The AML1-CBFbeta transcription factor complex is essential for the definitive hematopoiesis of all lineages and is the most frequent target of chromosomal rearrangements in human leukemia. In the t(8;21) translocation associated with acute myeloid leukemia (AML), the AML1(CBFA2/PEBP2alphaB) gene is juxtaposed to the MTG8(ETO/CDR) gene. We show here that the resultant AML1-MTG8 gene product specifically and strongly interacts with an 85-kDa phosphoprotein. Molecular cloning of cDNA indicated that the AML1-MTG8-binding protein (MTGR1) is highly related to MTG8 and similar to Drosophila Nervy. Comparison of amino acid sequences among MTGR1, MTG8, and Nervy revealed four evolutionarily conserved regions (NHR1 to NHR4). Ectopic expression of AML1-MTG8 in L-G murine myeloid progenitor cells inhibits differentiation to mature neutrophils and induces cell proliferation in response to granulocyte colony-stimulating factor (G-CSF). Analysis with C-terminal deletion mutants of AML1-MTG8 indicated that the region of 51 residues (488 to 538), which contains NHR2, is essential for the induction of G-CSF-dependent cell proliferation. Immunoprecipitation analysis indicates that this region is required for AML1-MTG8 to form a stable complex with MTGR1. Overexpression of MTGR1 stimulates AML1-MTG8 to induce G-CSF-dependent proliferation of L-G cells and to interfere with AML1-dependent transcription. These results suggest that AML1-MTG8 could function as a complex with MTGR1 and that the complex might be important in promoting leukemogenesis.