Mutations in the 3' to 5' RNA exonuclease USB1 cause hematopoietic failure in poikiloderma with neutropenia (PN). Although USB1 is known to regulate U6 small nuclear RNA maturation, the molecular mechanism underlying PN remains undetermined, as pre-mRNA splicing is unaffected in patients. We generated human embryonic stem cells harboring the PN-associated mutation c.531_delA in USB1 and show that this mutation impairs human hematopoiesis. Dysregulated microRNA (miRNA) levels in USB1 mutants during blood development contribute to hematopoietic failure, because of a failure to remove 3'-end adenylated tails added by PAPD5/7. Modulation of miRNA 3'-end adenylation through genetic or chemical inhibition of PAPD5/7 rescues hematopoiesis in USB1 mutants. This work shows that USB1 acts as a miRNA deadenylase and suggests PAPD5/7 inhibition as a potential therapy for PN.