Ewing's sarcoma/primitive neuroectodermal tumor (EWS/PNET) has a characteristic chimeric oncogene EWS-FLI1, which results from chromosomal translocation t (11; 22), that is believed to initiate tumorigenesis of EWS/PNET. However, the specific details of EWS/PNET oncogenesis and exact role of EWS-FLI1 remain largely unknown. In this study we explored the role of EWS-FLI1 in tumor differentiation using an embryonal carcinoma cell line P19 as a model, with forced expression of EWS-FLI1 in these cells. EWS-FLI1 has been reported to promote neural differentiation in fibroblasts, mesenchymal stem cells and rhabdomyosarcoma cells. We show forced expression of EWS-FLI1 causes absence of retinoic acid-induced neural morphology, and decreases expression of neural-specific proteins MAPT and NCAM. Critical transcriptional factors for neural differentiation and stem cells are also altered in the presence of EWS-FLI1, including decreases in levels of Oct-3 and Pax-6, and an increase in the level of Id2, which is a target of EWS-FLI1. Increased proliferation and decreased apoptotic rates are also observed in P19 cells with forced expression of EWS-FLI1. Our results raise the possibility that arrest of neural differentiation by forced expression of EWS-FLI1 as observed in this study may result from dysregulation of the cell cycle and cell proliferation. Taken together, our results demonstrate that the modulation of neural differentiation in P19 cells which have a stem cell-like pluripotency in vitro can provide a novel model system to study the neural differentiation effects of EWS-FLI1 tumorigenesis of EWS/PNET.