Acquired mutations in the hematopoietic transcription factor GATA binding protein-1 (GATA1) are found in megakaryoblasts from nearly all individuals with Down syndrome with transient myeloproliferative disorder (TMD, also called transient leukemia) and the related acute megakaryoblastic leukemia (DS-AMKL, also called DS-AML M7). These mutations lead to production of a variant GATA1 protein (GATA1s) that is truncated at its N terminus. To understand the biological properties of GATA1s and its relation to DS-AMKL and TMD, we used gene targeting to generate Gata1 alleles that express GATA1s in mice. We show that the dominant action of GATA1s leads to hyperproliferation of a unique, previously unrecognized yolk sac and fetal liver progenitor, which we propose accounts for the transient nature of TMD and the restriction of DS-AMKL to infants. Our observations raise the possibility that the target cells in other leukemias of infancy and early childhood are distinct from those in adult leukemias and underscore the interplay between specific oncoproteins and potential target cells.