Rhabdomyosarcomas, malignant tumors of mesenchymal origin, are the most common soft tissue sarcomas in children. Of the two subtypes, alveolar tumors (ARMS) portend the worst prognosis. Most ARMS are characterized by a balanced reciprocal chromosomal translocation t(2;13) that fuses the PAX3 to the FOXO1 gene. Expression of the fusion gene is a negative prognostic factor independent of tumor subtype. Despite the overwhelming data implicating the PAX3-FOXO1 chimeric protein in the pathogenesis of ARMS, little is known about its function. To study its function in its endogenous context, myogenic precursor cells were isolated from transgenic mice. These cells express PAX3- FOXO1 under the control of the PAX3 promoter. The absence of any additional genetic lesions enabled us to dissect the effect of PAX3-FOXO1 alone without the contribution of the additional genetic abnormalities in cells derived from tumors. Chapter 1 introduces alvoleolar rhabdomyosarcomas and summarizes current knowledge of PAX3-FOXO1 function. Chapter 2 describes the characterization of PAX3-FOXO1 transgenic myoblasts and details the discovery of a novel mechanisms by which PAX3-FOXO1 regulates p57Kip2 transcription through the degradation of EGR1. Chapter 3 details the regulation of Mdm2 transcription by PAX3-FOXO1 and discusses how this attenuation of TP53 function likely contributes to the relative resistance of ARMS to treatment. Chapter 4 summarizes the progress made in this dissertation and examines future directions