Fanconi anemia (FA) is an autosomal recessive chromosome instability syndrome characterized by progressive bone marrow (BM) failure, skeletal defects, and increased susceptibility to malignancy. FA cells are hypersensitive to DNA cross-linking agents, oxygen and have cell cycle abnormalities. To develop an animal model of the disease we generated mice homozygous for a targeted deletion of exon 9 of the murine FA complementation group C gene (fac). Mutant mice had normal neonatal viability and gross morphology, but their cells had the expected chromosome breakage and DNA cross-linker sensitivity. Surprisingly, male and female mutant mice had reduced numbers of germ cells and females had markedly impaired fertility. No anemia was detectable in the peripheral blood during the first year of life, but the colony forming capacity of marrow progenitor cells was abnormal in vitro in mutant mice. Progenitor cells from fac knock-out mice were hypersensitive to interferon gamma. This previously unrecognized phenotype may form the basis for BM failure in human FA.