Rhabdomyosarcoma is the most common soft tissue sarcoma of childhood and adolescence. Despite advances in therapy, patients with a histologic variant of rhabdomyosarcoma known as alveolar rhabdomyosarcoma (ARMS) have a 5-year survival of <30%. ARMS is characterized by a chromosomal translocation generating the PAX3-FKHR fusion gene. However, ectopic expression of PAX3-FKHR often induces inhibition of cell proliferation, or cell death, when expressed in nonmuscle cells. This prompted us to explore the effect of expressing PAX3-FKHR in more relevant cells, specifically primary human skeletal muscle cells because these cells can be converted to a tumorigenic state that mimics rhabdomyosarcoma. PAX3-FKHR expression promoted both fetal and postnatal primary human skeletal muscle cell precursors to bypass the senescence growth arrest checkpoint. This bypass was accompanied by epigenetic DNA methylation of the p16^INK4A promoter and correspondingly a loss of expression of this tumor suppressor. Knockdown of p16^INK4A cooperated with PAX3-FKHR to drive proliferation past senescence, whereas reintroduction of wild-type p16^INK4A in post-senescent cells caused growth arrest. Thus, PAX3-FKHR acts in concert with loss of p16^INK4A to promote inappropriate proliferation of skeletal muscle cells. This association between PAX3-FKHR expression and p16^INK4A loss was seen in human ARMS tumor tissue, as both human rhabdomyosarcoma cell lines and tissue microarrays showed a trend toward down-regulation of p16^INK4A protein in alveolar subsets. We surmise that the generation of the PAX3-FKHR fusion protein may require loss of p16^INK4A to promote malignant proliferation of skeletal muscle cells as an early step in ARMS tumorigenesis. [Cancer Res 2007;67(14):6691–9]