The most common chromosomal translocation in liposarcomas, t (12; 16)(q13; p11), creates the FUS/TLS-CHOP fusion gene. We previously developed a mouse model of liposarcoma by expressing FUS-CHOP in murine mesenchymal stem cells. In order to understand how FUS-CHOP can initiate liposarcoma, we have now generated transgenic mice expressing altered forms of the FUS-CHOP protein. Transgenic mice expressing high levels of CHOP, which lacks the FUS domain, do not develop any tumor despite its tumorigenicity in vitro and widespread activity of the EF1α promoter. These animals consistently show the accumulation of a glycoprotein material within the terminally differentiated adipocytes, a characteristic figure of liposarcomas associated with FUS-CHOP. On the contrary, transgenic mice expressing the altered form of FUS-CHOP created by the in frame fusion of the FUS domain to the carboxy end of CHOP (CHOP-FUS) developed liposarcomas. No tumors of other tissues were found in these transgenic mice despite widespread activity of the EF1α promoter. The characteristics of the liposarcomas arising in the CHOP-FUS mice were very similar to those previously observed in our FUS-CHOP transgenic mice indicating that the FUS domain is required not only for transformation but also influences the phenotype of the tumor cells. These results provide evidence that the FUS domain of FUS-CHOP plays a specific and critical role in the pathogenesis of liposarcoma.