The function of Hedgehog signaling in hematopoiesis is controversial, with different experimental systems giving opposing results. Here we examined the role of Desert Hedgehog (Dhh) in the regulation of murine erythropoiesis. Dhh is one of 3 mammalian Hedgehog family proteins. Dhh is essential for testis development and Schwann cell function. We show, by analysis of Dhh-deficient mice, that Dhh negatively regulates multiple stages of erythrocyte differentiation. In Dhh-deficient bone marrow, the common myeloid progenitor (CMP) population was increased, but differentiation from CMP to granulocyte/macrophage progenitor was decreased, and the mature granulocyte population was decreased, compared with wild-type (WT). In contrast, differentiation from CMP to megakaryocyte/erythrocyte progenitor was increased, and the megakaryocyte/erythrocyte progenitor population was increased. In addition, we found that erythroblast populations were Dhh-responsive in vitro and ex vivo and that Dhh negatively regulated erythroblast differentiation. In Dhh-deficient spleen and bone marrow, BFU-Es and erythroblast populations were increased compared with WT. During recovery of hematopoiesis after irradiation, and under conditions of stress-induced erythropoiesis, erythrocyte differentiation was accelerated in both spleen and bone marrow of Dhh-deficient mice compared with WT.