Leukemia-specific AML1/ETO transcripts are detectable in most patients with t(8;21) acute myelogenous leukemia (AML) in long-term remission. To understand the inconsistency between the clinical cure and the presence of “residual disease” at a molecular level, we separated and identified the cells expressing AML1/ETO by phenotype and function. Here we demonstrate that AML1/ETO transcripts are present in a fraction of stem cells, monocytes, and B cells in remission marrow, and in a fraction of B cells in leukemic marrow, but not in T cells. AML1/ETO transcripts also were demonstrated in a fraction of colony-forming cells of erythroid, granulocyte-macrophage, and/or megakaryocyte lineages in both leukemic and remission marrow. These data strongly suggest that the acquisition of the t(8;21) occurs at the level of stem cells capable of differentiating into B cells as well as all myeloid lineages, and that a fraction of the AML1/ETO-expressing stem cells undergo additional oncogenic event(s) that ultimately leads to transformation into AML.