Acute myeloid leukaemia (AML) has been proposed to arise from the collaboration between two classes of mutation, a class I, or proliferative, mutation and a class II, or blocking, mutation. A limitation of this so-called 'two-hit' hypothesis has been the lack of identifiable proliferative and blocking mutations in most AML cases. However, it is now known that the CBFbeta-MYH11 fusion gene in AML and inv(16), by disrupting the normal transcription factor activity of core binding factor (CBF), functions as a class II mutation. In addition, nearly 70% of patients with AML and inv(16) are known to possess mutually exclusive mutations of the receptor tyrosine kinases (RTKs), c-KIT and FLT3, as well as RAS genes, that provide a class I, or proliferative, signal. AML and inv(16), therefore, is one of the best understood of the acute leukaemias at the genetic level and so provides a paradigm for the 'two-hit' hypothesis of leukaemogenesis. This paper reviews the recent advances in the molecular pathology of AML and inv(16) and discusses possible therapeutic implications of the current pathogenetic model.