The Rho GTPase Cdc42 regulates adhesion, migration, and homing, as well as cell cycle progression, of hematopoietic stem cells, but its role in multilineage blood development remains unclear. We report here that inducible deletion of cdc42 in cdc42-floxed mouse bone marrow by the interferon-responsive, Mx1-Cre-mediated excision led to myeloid and erythroid developmental defects. Cdc42 deletion affected the number of early myeloid progenitors while suppressing erythroid differentiation. Cdc42-deficient mice developed a fatal myeloproliferative disorder manifested by significant leukocytosis with neutrophilia, myeloid hyperproliferation, and myeloid cell infiltration into distal organs. Concurrently, Cdc42 deficiency caused anemia and splenomegaly accompanied with decreased bone marrow erythroid burst-forming units (BFU-Es) and colony-forming units-erythroid (CFU-Es) activities and reduced immature erythroid progenitors, suggesting that Cdc42 deficiency causes a block in the early stage of erythropoiesis. Cdc42 activity is responsive to stimulation by SCF, IL3, SDF-1alpha, and fibronectin. The increased myelopoiesis and decreased erythropoiesis of the knockout mice are associated with an altered gene transcription program in hematopoietic progenitors, including up-regulation of promyeloid genes such as PU.1, C/EBP1alpha, and Gfi-1 in the common myeloid progenitors and granulocyte-macrophage progenitors and down-regulation of proerythroid gene such as GATA-2 in the megakaryocyte-erythroid progenitors. Thus, Cdc42 is an essential regulator of the balance between myelopoiesis and erythropoiesis.