Both PU.1 (also called SFPI1), an Ets-family transcription factor, and AML1 (also called RUNX1), a DNA-binding subunit of the CBF transcription factor family, are crucial for the generation of all hematopoietic lineages, and both act as tumor suppressors in leukemia. An upstream regulatory element (URE) of PU.1 has both enhancer and repressor activity and tightly regulates PU.1 expression. Here we show that AML1 binds to functionally important sites within the PU.1 upstream regulatory element and regulates PU.1 expression at both embryonic and adult stages of development. Analysis of mice carrying conditional AML1 knockout alleles and knock-in mice carrying mutations in all three AML1 sites of the URE proximal region demonstrated that AML1 regulates PU.1 both positively and negatively in a lineage dependent manner. Dysregulation of PU.1 expression contributed to each of the phenotypes observed in these mice, and restoration of proper PU.1 expression rescued or partially rescued each phenotype. Thus, our data demonstrate that PU.1 is a major downstream target gene of AML1.