NUP98-HOXD13 (NHD13) fusions have been identified in patients with myelodysplastic syndrome, acute myelogenous leukemia and chronic myeloid leukemia blast crisis. We generated 'knock-in' mouse embryonic stem (ES) cells that express a NHD13 fusion gene from the endogenous murine NUP98 promoter, and used an in vitro differentiation system to differentiate the ES cells to hematopoietic colonies. Replating assays demonstrated that the partially differentiated NHD13 ES cells were immortal, and two of these cultures were transferred to liquid culture. These cell lines are partially differentiated immature hematopoietic cells, as determined by morphology, immunophenotype and gene expression profile. Despite these characteristics, they were unable to differentiate when exposed to high concentrations of erythropoietin (Epo), granulocyte colony-stimulating factor or macrophage colony-stimulating factor. The cell lines are incompletely transformed, as evidenced by their dependence on interleukin 3 (IL-3), and their failure to initiate tumors when injected into immunodeficient mice. We attempted genetic complementation of the NHD13 gene using IL-3 independence and tumorigenicity in immunodeficient mice as markers of transformation, and found that BCR-ABL successfully transformed the cell lines. These findings support the hypothesis that expression of a NHD13 fusion gene impairs hematopoietic differentiation, and that these cell lines present a model system to study the nature of this impaired differentiation.