Chromosomal translocations in acute leukemia that affect the AML-1/CBFbeta transcription factor complex create dominant inhibitory proteins. However, the mechanisms by which these proteins act remain obscure. Here we demonstrate that the multidrug resistance 1 (MDR-1) promoter is a target for AML/ETO transcriptional repression. This repression is of basal, not activated, expression from the MDR-1 promoter and thus represents a new mechanism for AML/ETO function. We have defined two domains in AML/ETO that are required for repression of basal transcription from the MDR-1 promoter: a hydrophobic heptad repeat (HHR) motif and a conserved zinc finger (ZnF) domain termed the MYND domain. The HHR mediates formation of AML/ETO homodimers and AML/ETO-ETO heterodimers. Single serine substitutions at conserved cysteine residues within the predicted ZnFs also abrogate transcriptional repression. Finally, we observe that AML/ETO can also inhibit Ets-1 activation of the MDR-1 promoter, indicating that AML/ETO can disrupt both basal and Ets-1-dependent transcription. The fortuitous inhibition of MDR-1 expression in t(8;21)-containing leukemias may contribute to the favorable response of these patients to chemotherapeutic drugs.