The t(12;21) translocation is the most common genetic rearrangement in childhood acute lymphoblastic leukemia (ALL) and gives rise to the TEL-AML1 fusion gene. Many studies on TEL-AML1 describe specific properties of the fusion protein, but a thorough understanding of its function is lacking. We exploited a pluripotent hematopoietic stem/progenitor cell line, EML1, and generated a cell line (EML-TA) stably expressing the TEL-AML1 fusion protein. EML1 cells differentiate to mature B-cells following treatment with IL7; whereas EML-TA display an impaired differentiation capacity and remain blocked at an early stage of maturation. Global gene expression profiling of EML1 cells at different stages of B-lymphoid differentiation, compared with EML-TA, identified the interferon (IFN)α/β pathway as a primary target of repression by TEL-AML1. In particular, expression and phosphorylation of interferon-regulatory factor 3 (IRF3) was decreased in EML-TA cells; strikingly, stable expression of IRF3 restored the capacity of EML-TA cells to differentiate into mature B-cells. Similarly, IRF3 silencing in EML1 cells by siRNA was sufficient to block B-lymphoid differentiation. The ability of TEL-AML1 to block B-cell differentiation and downregulate the IRF3-IFNα/β pathway was confirmed in mouse and human primary hematopoietic precursor cells (Lin - and CD34+ cells, respectively), and in a patient-derived cell line expressing TEL-AML1 (REH). Furthermore, treatment of TEL-AML1 expressing cells with IFNα/β was sufficient to overcome the maturation block. Our data provide new insight on TEL-AML1 function and may offer a new therapeutic opportunity for B-ALL.