The t(1;19) chromosomal translocation is observed in pre-B cell acute lymphoblastic leukemias and results in expression of chimeric E2A-PBX1 proteins that contain transcriptional activation domains from E2A and the homeodomain of PBX1. Since homeodomains mediate DNA-binding, a potential model for the action of E2A-PBX1 is that it disrupts the transcriptional regulation of genes normally controlled by PBX1 or its closely-related family members PBX2 or PBX3. Using a binding site selection assay, we identified a consensus nucleotide sequence ATCAATCA specifically bound by the PBX1 homeodomain and those of its closely-related family members PBX2 and PBX3. An endogenous protein with the properties of PBX3b specifically bound to this sequence in nuclear extracts of precursor B cells. Transfection of reporter genes containing PBX binding sites linked to a minimal promoter demonstrated transactivation by E2A-PBX1 fusion protein dependent upon presence of the homeodomain. In contrast, wild-type PBX proteins were incapable of activating transcription. The striking differences in transcriptional properties of fusion and wild-type PBX proteins provides strong functional evidence for the importance of aberrant transcriptional regulation in the genesis of t(1;19)-bearing leukemias.