A subset of paediatric sarcomas are characterized by chromosomal translocations encoding specific oncogenic transcription factors. Such fusion proteins represent tumor specific therapeutic targets although so far it has not been possible to directly inhibit their activity by small-molecule compounds. In this study, we hypothesized that screening a small-molecule library might identify already existing drugs that are able to modulate the transcriptional activity of PAX3/FOXO1, the fusion protein specifically found in the pediatric tumor alveolar rhabdomyosarcoma (aRMS). Towards this end, we established a reporter cell line based on the well characterized PAX3/FOXO1 target gene AP2ß. A library enriched in mostly FDA approved drugs was screened using specific luciferase activity as read-out and normalized for cell viability. The most effective inhibitor identified from this screen was Fenretinide. Treatment with this compound resulted in down-regulation of PAX3/FOXO1 mRNA and protein levels as well as in reduced expression of several of its direct target genes, but not of wild-type FOXO1, in a dose- and time-dependent manner. Moreover, fenretinide induced reactive oxygen species and apoptosis as shown by caspase 9 and PARP cleavage and upregulated miR-9. Importantly, it demonstrated a significant anti-tumor effect in vivo. These results are similar to earlier reports for two other pediatric tumors, namely neuroblastoma and Ewing sarcoma, where fenretinide is under clinical development. Our results suggest that fenretinide might represent a novel treatment option also for translocation-positive rhabdomyosarcoma.