Malignant transformation is a multistep process that is promoted by the accumulation of genetic changes over time. The contribution of individual genetic changes to the development of leukemia and the processes that induce these changes are not yet fully understood. The generation of the fusion gene AML1-ETO is thought to be an early event in the development of AML with t(8;21). Cells expressing AML1-ETO have been detected in samples from healthy newborns, as well as in patient samples analyzed long before the manifestation of AML. For these reasons it is assumed that a pre-leukemic clone expressing AML1-ETO requires additional genetic changes to complete the malignant transformation. However, the mechanism whereby these changes are acquired and the role that AML1-ETO plays in this process remain unclear. We used a model of human CD34+ cells expressing the AML1-ETO fusion protein to elucidate the role of AML1-ETO in leukemogenesis. AML1-ETO expressing (AE) cells displayed characteristics of a pre-leukemia, with enhanced self-renewal and NOD/SCID engraftment but no ability to induce malignancy in vivo. Analysis of gene expression using Affymetrix HG U133 Plus2.0 gene chips revealed that multiple genes important in various DNA repair pathways were suppressed in AE cells: OGG1, UNG, TDG, MBD4, POLB, POLE and FEN1 (Base Excision Repair), MRE11, RAD50, ATM, CHEK1 and CDC25A (ATM pathway), and FANCA, FANCL and BRCA2 (Fanconi anemia proteins). Treatment with DNA interstrand crosslinking agents mitomycin C or melphalan revealed a block in the S-phase of the cell cycle in AE cells at doses not affecting control cells. AE cells were also more sensitive to gamma irradiation compared to vector-transduced cells. In AE cultures, a gradual accumulation of cells with DNA damage was detected by immunofluorescence microscopy, using phosphorylated histone H2A.X as a marker. AE cells had a hyperactive p53 pathway with increased p53 protein levels, upregulation of its target genes (p21, TP53I3 and DAPK1), and increased apoptosis compared to control cultures, as might be expected in cells with chronic DNA damage. Incubation under low oxygen conditions prevented the accumulation of DNA damage and resulted in decreased expression of p53 target genes (TP53I3 and DAPK1), indicating that a sub-optimal response to the high oxygen stress of culture could be responsible for the accumulation of DNA damage foci and activation of the p53 pathway in AE cultures. Inhibition of p53 by shRNA led to increased resistance of AE cells to gamma irradiation but with continued high levels of DNA damage as shown by phosphorylated H2A.X. Interestingly, the POU4f1 transcription factor, a modifier of the p53 response pathway, has been found to be overexpressed in t(8;21) patient samples. In our system, AE cells that ectopically overexpressed POU4f1 following retroviral transduction showed decreased levels of p53 compared to vector-transduced AE cells. Inhibition of the p53 pathway in pre-leukemic clones expressing AML1-ETO could lead to a proliferative or survival advantage during periods of genotoxic stress. The impairment of DNA repair pathways and the accumulation of DNA damage in AML1-ETO-expressing cells may promote an elevated mutation rate and increase the chances of acquiring subsequent genetic alterations.