Transcription factors are believed to have a dominant role in acute myeloid leukemia (AML). This idea is supported by analysis of gene-knockout mice, which uncovered crucial roles of several transcription factors in normal hematopoiesis, and of individuals with leukemia, in whom transcription factors are frequently downregulated or mutated. However, analysis of knockout animals has not shown a direct link between abrogated transcription factors and the pathogenesis of AML. Sfpi1, encoding the lineage-specific transcription factor PU.1, is indispensable for normal myeloid and lymphoid development. We found that mice carrying hypomorphic Sfpi1 alleles that reduce PU.1 expression to 20% of normal levels, unlike mice carrying homo- or heterozygous deletions of Sfpi1, developed AML. Unlike complete or 50% loss, 80% loss of PU.1 induced a precancerous state characterized by accumulation of an abnormal precursor pool retaining responsiveness to G-CSF with disruption of M- and GM-CSF pathways. Malignant transformation was associated with a high frequency of clonal chromosomal changes. Retroviral restoration of PU.1 expression rescued myeloid differentiation of mutant progenitors and AML blasts. These results suggest that tightly graded reduction, rather than complete loss, of a lineage-indispensable transcription factor can induce AML.