Chromosomal rearrangements deregulating hematopoietic transcription factors are common in acute lymphoblastic leukemia (ALL).1,2 Here, we show that deregulation of the homeobox transcription factor gene DUX4 and the ETS transcription factor gene ERG are hallmarks of a subtype of B-progenitor ALL that comprises up to 7% of B-ALL. DUX4 rearrangement and overexpression was present in all cases, and was accompanied by transcriptional deregulation of ERG, expression of a novel ERG isoform, ERGalt, and frequent ERG deletion. ERGalt utilizes a non-canonical first exon whose transcription was initiated by DUX4 binding. ERGalt retains the DNA-binding and transactivating domains of ERG, but inhibits wild-type ERG transcriptional activity and is transforming. These results illustrate a unique paradigm of transcription factor deregulation in leukemia, in which DUX4 deregulation results in loss-of-function of ERG, either by deletion or induction of expression of an isoform that is a dominant negative inhibitor of wild type ERG function.