The scl gene encodes a basic-helix-loop-helix transcription factor which was identified through its involvement in chromosomal translocations in T-cell leukemia. To elucidate its physiological role, scl was targeted in embryonic stem cells. Mice heterozygous for the scl null mutation were intercrossed and their offspring were genotyped. Homozygous mutant (scl-/-) pups were not detected in newborn litters, and analysis at earlier time points demonstrated that scl-/- embryos were dying around embryonic day 9.5. The scl-/- embryos were pale, edematous, and markedly growth retarded after embryonic day 8.75. Histological studies showed complete absence of recognizable hematopoiesis in the yolk sac of these embryos. Early organogenesis appeared to be otherwise normal. Culture of yolk sac cells of wild-type, heterozygous, and homozygous littermates confirmed the absence of hematopoietic cells in scl-/- yolk sacs. Reverse transcription PCR was used to examine the transcripts of several genes implicated in early hematopoiesis. Transcripts of GATA-1 and PU.1 transcription factors were absent from RNA from scl-/- yolk sacs and embryos. These results implicate scl as a crucial regulator of early hematopoiesis.