CCAAT displacement protein (cux/CDP) is an atypical homeodomain protein that represses expression of several developmentally regulated lymphoid and myeloid genes in vitro, including gp91-phox, immunoglobulin heavy chain, the T-cell receptor beta and gamma chains, and CD8. To determine how this activity affects cell development in vivo, a hypomorphic allele of cux/CDP was created by gene targeting. Homozygous mutant mice (cux/CDP(Delta HD/Delta HD)) demonstrated a partial neonatal lethality phenotype. Surviving animals suffered from a wasting disease, which usually resulted in death between 2 and 3 weeks of age. Analysis of T lymphopoiesis demonstrated that cux/CDP(Delta HD/Delta HD) mice had dramatically reduced thymic cellularity due to enhanced apoptosis, with a preferential loss of CD4(+)CD8(+) thymocytes. Ectopic CD25 expression was also observed in maturing thymocytes. B lymphopoiesis was also perturbed, with a 2- to 3-fold reduction in total bone marrow B-lineage cells and a preferential loss of cells in transition from pro-B/pre-BI to pre-BII stages due to enhanced apoptosis. These lymphoid abnormalities were independent of effects related to antigen receptor rearrangement. In contrast to the lymphoid demise, cux/CDP(Delta HD/Delta HD) mice demonstrated myeloid hyperplasia. Bone marrow reconstitution experiments identified that many of the hematopoietic defects were linked to microenvironmental effects, suggesting that underexpression of survival factors or overexpression of death-inducing factors accounted for the phenotypes observed. Tumor necrosis factor (TNF) levels were elevated in several tissues, especially thymus, suggesting that TNF may be a target gene for cux/CDP-mediated repression. These data suggest that cux/CDP regulates normal hematopoiesis, in part, by modulating the levels of survival and/or apoptosis factors expressed by the microenvironment.