We created a "knockout" embryonic stem cell via targeted disruption of the phosphatidylinositol glycan class A (Pig-a) gene, resulting in loss of expression of cell surface glycosyl phosphatidylinositol-anchored proteins and reproducing the mutant phenotype of the human disease paroxysmal nocturnal hemoglobinuria. Morphogenesis of Pig-a- embryoid bodies (EB) in vitro was grossly aberrant and, unlike EB derived from normal embryonic stem cells, Pig-A EB produced no secondary hematopoietic colonies. Chimeric EB composed of control plus Pig-A- cells, however, appeared normal, and hematopoiesis from knock-out cells was reconstituted. Transfer in situ of glycosyl phosphatidylinositol-anchored proteins from normal to knock-out cells was demonstrated by two-color fluorescent analysis, suggesting a possible mechanism for these functional effects. Hematopoietic cells with mutated PIG-A genes in humans with paroxysmal nocturnal hemoglobinuria may be subject to comparable pathophysiologic processes and amenable to similar therapeutic protein transfer.