SOCS3 (CIS3/JAB2) is an SH2-containing protein that binds to the activation loop of Janus kinases, inhibiting kinase activity, and thereby suppressing cytokine signaling. During embryonic development, SOCS3 is highly expressed in erythroid lineage cells and is Epo independent. Transgene-mediated expression blocks fetal erythropoiesis, resulting in embryonic lethality. SOCS3 deletion results in an embryonic lethality at 12-16 days associated with marked erythrocytosis. Moreover, the in vitro proliferative capacity of progenitors is greatly increased. SOCS3-deficient fetal liver stem cells can reconstitute hematopoiesis in lethally irradiated adults, indicating that its absence does not disturb bone marrow erythropoiesis. Reconstitution of lymphoid lineages in JAK3-deficient mice also occurs normally. The results demonstrate that SOCS3 is critical in negatively regulating fetal liver hematopoiesis.