Ewing's sarcoma is characterized by the t(11;22)(q24:q12) reciprocal translocation. To study the effects of the fusion gene EWS-FLI1 on development and tumor formation, a transgenic mouse model was created. A strategy of conditional expression was used to limit the potentially deleterious effects of EWS-FLI1 to certain tissues. In the absence of Cre recombinase, EWS-FLI1 was not expressed in the EWS-FLI1 transgenic mice, and they had a normal phenotype. When crossed to the Prx1-Cre transgenic mouse, which expresses Cre recombinase in the primitive mesenchymal cells of the embryonic limb bud, the EF mice were noted to have a number of developmental defects of the limbs. These included shortening of the limbs, muscle atrophy, cartilage dysplasia, and immature bone. By itself, EWS-FLI1 did not induce the formation of tumors in the EF transgenic mice. However, in the setting of p53 deletion, EWS-FLI1 accelerated the formation of sarcomas from a median time of 50 to 21 weeks. Furthermore, EWS-FLI1 altered the type of tumor that formed. Conditional deletion of p53 in mesenchymal cells (Prx1-Cre p53(lox/lox)) produced osteosarcomas as the predominant tumor. The presence of EWS-FLI1 shifted the tumor phenotype to a poorly differentiated sarcoma. The results taken together suggest that EWS-FLI1 inhibits normal limb development and accelerates the formation of poorly differentiated sarcomas.