The activation of Fli-1, an Ets transcription factor, is the critical genetic event in Friend murine leukemia virus (F-MuLV)-induced erythroleukemia. Fli-1 overexpression leads to erythropoietin-dependent erythroblast proliferation, enhanced survival, and inhibition of terminal differentiation, through activation of the Ras pathway. However, the mechanism by which Fli-1 activates this signal transduction pathway has yet to be identified. Down-regulation of the Src homology 2 (SH2) domain-containing inositol-5-phosphatase-1 (SHIP-1) is associated with erythropoietin-stimulated erythroleukemic cells and correlates with increased proliferation of transformed cells. In this study, we have shown that F-MuLV-infected SHIP-1 knockout mice display accelerated erythroleukemia progression. In addition, RNA interference (RNAi)-mediated suppression of SHIP-1 in erythroleukemia cells activates the phosphatidylinositol 3-kinase (PI 3-K) and extracellular signal-regulated kinase/mitogen-activated protein kinase (ERK/MAPK) pathways, blocks erythroid differentiation, accelerates erythropoietin-induced proliferation, and leads to PI 3-K-dependent Fli-1 up-regulation. Chromatin immunoprecipitation and luciferase assays confirmed that Fli-1 binds directly to an Ets DNA binding site within the SHIP-1 promoter and suppresses SHIP-1 transcription. These data provide evidence to suggest that SHIP-1 is a direct Fli-1 target, SHIP-1 and Fli-1 regulate each other in a negative feedback loop, and the suppression of SHIP-1 by Fli-1 plays an important role in the transformation of erythroid progenitors by F-MuLV.