The transcriptional repressor Gfi1 is a nuclear zinc-finger protein expressed in T-cell precursors in the thymus and in activated mature T lymphocytes. Previous experiments have shown that Gfi1 is involved in T-cell lymphomagenesis and in the development of T-cell progenitors. Here we show that Gfi1 is also expressed outside the lymphoid system in granulocytes and activated macrophages, cells that mediate innate immunity (that is, non-specific immunity). We have generated Gfi1-deficient mice (Gfi1-/-) and show that these animals are severely neutropenic and accumulate immature monocytic cells in blood and bone marrow. Their myeloid precursor cells are unable to differentiate into granulocytes upon stimulation with granulocyte colony-stimulating factor (G-CSF) but can develop into mature macrophages. We found that Gfi1-/- macrophages produce enhanced levels of inflammatory cytokines, such as tumor necrosis factor (TNF), interleukin-10 (IL-10) and IL-1beta, when stimulated with bacterial lipopolysaccharide (LPS) and that Gfi1-/- mice succumb to low doses of this endotoxin that are tolerated by wildtype mice. We conclude that Gfi1 influences the differentiation of myeloid precursors into granulocytes or monocytes and acts in limiting the inflammatory immune response.