Transcription elongation factor S-II/TFIIS promotes readthrough of transcriptional blocks by stimulating nascent RNA cleavage activity of RNA polymerase II in vitro. The biologic significance of S-II function in higher eukaryotes, however, remains unclear. To determine its role in mammalian development, we generated S-II-deficient mice through targeted gene disruption. Homozygous null mutants died at midgestation with marked pallor, suggesting severe anemia. S-II(-/-) embryos had a decreased number of definitive erythrocytes in the peripheral blood and disturbed erythroblast differentiation in fetal liver. There was a dramatic increase in apoptotic cells in S-II(-/-) fetal liver, which was consistent with a reduction in Bcl-x(L) gene expression. The presence of phenotypically defined hematopoietic stem cells and in vitro colony-forming hematopoietic progenitors in S-II(-/-) fetal liver indicates that S-II is dispensable for the generation and differentiation of hematopoietic stem cells. S-II-deficient fetal liver cells, however, exhibited a loss of long-term repopulating potential when transplanted into lethally irradiated adult mice, indicating that S-II deficiency causes an intrinsic defect in the self-renewal of hematopoietic stem cells. Thus, S-II has critical and nonredundant roles in definitive hematopoiesis.