The products of PBX homeobox genes, which were initially discovered in reciprocal translocations occurring in human leukemias, have been shown to cooperate in the in vitro DNA binding with HOX proteins. Despite the growing body of data implicating Hox genes in the development of various cancers, little is known about the role of HOX-PBX interactions in the regulation of proliferation and induction of transformation of mammalian cells. We build on the existing model of Hox-induced transformation of Rat-1 cells to show that both cellular transformation and proliferation induced by Hoxb4 and Hoxb3 are greatly modulated by the levels of available PBX1 present in these cells. Furthermore, we show that the transforming capacity of these two HOX proteins depends on their conserved tetrapeptide and homeodomain regions which mediate binding to PBX and DNA, respectively. Taken together, results of this study demonstrate that cooperation between HOX and PBX proteins modulates cellular proliferation and strongly suggest that cooperative DNA binding by these two groups of proteins represent the basis for Hox-induced cellular transformation.