The initial steps in the pathogenesis of acute leukemia remain incompletely understood. The TEL-AML1 gene fusion, the hallmark translocation in Childhood Acute Lymphoblastic Leukemia and the first hit, occurs years before the clinical disease, most often in utero. We have generated mice in which TEL-AML1 expression is driven from the endogenous promoter and can be targeted to specific populations. TEL-AML1 renders mice prone to malignancy after chemical mutagenesis when expressed in hematopoietic stem cells (HSCs), but not in early lymphoid progenitors. We reveal that TEL-AML1 markedly increases the number of HSCs and predominantly maintains them in the quiescent (G(0)) stage of the cell cycle. TEL-AML1(+) HSCs retain self-renewal properties and contribute to hematopoiesis, but fail to out-compete normal HSCs. Our work shows that stem cells are susceptible to subversion by weak oncogenes that can subtly alter their molecular program to provide a latent reservoir for the accumulation of further mutations.