Alveolar rhabdomyosarcoma (aRMS) is a myogenic childhood sarcoma frequently associated with a translocation-mediated fusion gene, Pax3:Foxo1a. We investigated the complementary role of Rb1 loss in aRMS tumor initiation and progression using conditional mouse models. Rb1 loss was not a necessary and sufficient mutational event for rhabdomyosarcomagenesis, nor a strong cooperative initiating mutation. Instead, Rb1 loss was a modifier of progression and increased anaplasia and pleomorphism. Whereas Pax3:Foxo1a expression was unaltered, biomarkers of aRMS versus embryonal rhabdomyosarcoma were both increased, questioning whether these diagnostic markers are reliable in the context of Rb1 loss. Genome-wide gene expression in Pax3:Foxo1a,Rb1 tumors more closely approximated aRMS than embryonal rhabdomyosarcoma. Intrinsic loss of pRb function in aRMS was evidenced by insensitivity to a Cdk4/6 inhibitor regardless of whether Rb1 was intact or null. This loss of function could be attributed to low baseline Rb1, pRb and phospho-pRb expression in aRMS tumors for which the Rb1 locus was intact. Pax3:Foxo1a RNA interference did not increase pRb or improve Cdk inhibitor sensitivity. Human aRMS shared the feature of low and/or heterogeneous tumor cell pRb expression. Rb1 loss from an already low pRb baseline is a significant disease modifier, raising the possibility that some cases of pleomorphic rhabdomyosarcoma may in fact be Pax3:Foxo1a-expressing aRMS with Rb1 or pRb loss of function.