Mouse embryos homozygous for a targeted disruption in the Fli-1 gene show hemorrhage into the neural tube and brain on embryonic day (E)11.0 and die shortly thereafter. Livers from the mutant embryos contain drastically reduced numbers of pronormoblasts, basophilic normoblasts, and colony-forming cells. To determine the nature of impaired hematopoiesis, we carried out cell culture studies of mutant embryonic stem (ES) cells and cells from the aorta-gonad-mesonephros (AGM) region of E10.0 mutant embryos. There was a striking reduction in the number of megakaryocytes in cultures of mutant AGM cells compared with cultures of AGM cells from wild-type or heterozygous embryos. Furthermore, Fli-1 mutant ES cells failed to produce megakaryocyte colonies and multilineage colonies containing megakaryocytes. Consistent with the observed defect in megakaryopoiesis, we also demonstrated the down-regulation of c-mpl in the AGM of mutant embryos. The percentages of pronormoblasts and basophilic normoblasts were significantly reduced in cultures of mutant AGM embryos, which contained primarily polychromatophilic and orthochromatic normoblasts. These results provide further evidence for the role of Fli-1 in the regulation of hematopoiesis and for c-mpl as a Fli-1 target gene.