Among mutations in human Runx1/AML1 transcription factors, the t(8;21)(q22;q22) genomic translocation that creates an AML1-ETO fusion protein is implicated in etiology of the acute myeloid leukemia. To identify genes and components associated with this oncogene we used Drosophila as a genetic model. Expression of AML1-ETO caused an expansion of hematopoietic precursors in Drosophila, which expressed high levels of reactive oxygen species (ROS). Mutations in functional domains of the fusion protein suppress the proliferative phenotype. In a genetic screen, we found that inactivation of EcRB1 or activation of Foxo and superoxide dismutase-2 (SOD2) suppress the AML1-ETO-induced phenotype by reducing ROS expression in the precursor cells. Our studies indicate that ROS is a signaling factor promoting maintenance of normal as well as the aberrant myeloid precursors and suggests the importance of antioxidant enzymes and their regulators as targets for further study in the context of leukemia.