Ewing's sarcomas are highly aggressive round cell tumors of bone and soft tissues that afflict children and young adults. The majority of these tumors harbor the t(11;22) translocation and express the fusion protein EWS-FLI. Modern molecular profiling experiments indicate that Ewing's tumors originate from mesenchymal precursors in young individuals. EWS-FLI alters the morphology of mesenchymal cells and prevents lineage specification; however, the molecular mechanisms for differentiation arrest are unclear. We recently showed that EWS-FLI binds Runx2, a master regulator of osteoblast differentiation. In this report, we demonstrate that FLI sequences within EWS-FLI are responsible for interactions with Runx2. EWS-FLI blocks the expression of osteoblastic genes in a multipotent progenitor cell line that requires Runx2 to integrate bone morphogenic protein (Bmp)2 signaling while increasing proliferation and altering cell morphology. These results demonstrate that EWS-FLI blocks the ability of Runx2 to induce osteoblast specification of a mesenchymal progenitor cell. Disrupting interactions between Runx2 and EWS-FLI1 may promote differentiation of the tumor cell.