The EWS/FLI1 fusion protein is created by the translocation between chromosomes 11 and 22 that appears in most Ewing's sarcomas. This chimeric protein has been demonstrated to be an aberrant transcription factor. Genes up regulated by EWS/FLI1 but not by full-length FLI1 were identified by representational difference analysis (RDA). We have characterized a novel gene, EWS/FLI1 activated transcript 2 (EAT-2) that was cloned from a murine cDNA library using a differentially expressed RDA fragment. EAT-2 expression is seen within 4-8 h of EWS/FLI1 induction. Its expression correlates with transformation of NIH3T3 cells by chimeric proteins related to EWS/FLI1 but not by unrelated genes. EAT-2 is expressed in normal murine tissues and contains a unique but biochemically functional SH2 domain. An homologous sequence in the human genome has been identified and mapped to chromosome 1q22. Human EAT-2 transcripts were identified by reverse transcriptase-polymerase chain reaction (RT-PCR) in Ewing's sarcoma cell tumour cell lines. EAT-2's unique structure and correlation with transformation make it a candidate for playing a role in the transformation of NIH3T3 cells and the oncogenesis of Ewing's sarcoma.