The t(8;21) chromosomal translocation activates aberrant expression of the AML1-ETO (AE) fusion protein and is commonly associated with core binding factor acute myeloid leukaemia (CBF AML). Combining a conditional mouse model that closely resembles the slow evolution and the mosaic AE expression pattern of human t(8;21) CBF AML with global transcriptome sequencing, we find that disease progression was characterized by two principal pathogenic mechanisms. Initially, AE expression modified the lineage potential of haematopoietic stem cells (HSCs), resulting in the selective expansion of the myeloid compartment at the expense of normal erythro- and lymphopoiesis. This lineage skewing was followed by a second substantial rewiring of transcriptional networks occurring in the trajectory to manifest leukaemia. We also find that both HSC and lineage-restricted granulocyte macrophage progenitors (GMPs) acquired leukaemic stem cell (LSC) potential being capable of initiating and maintaining the disease. Finally, our data demonstrate that long-term expression of AE induces an indolent myeloproliferative disease (MPD)-like myeloid leukaemia phenotype with complete penetrance and that acute inactivation of AE function is a potential novel therapeutic option.