Development of hematopoietic stem cells (HSCs) and their immediate progeny is maintained by the interaction with cells in the microenvironment. We found that hematopoiesis was dysregulated in Id1(-/-) mice. Although the frequency of HSCs in Id1(-/-) bone marrow was increased, their total numbers remained unchanged as the result of decreased bone marrow cellularity. In addition, the ability of Id1(-/-) HSCs to self-renew was normal, suggesting Id1 does not affect HSC function. Id1(-/-) progenitors showed increased cycling in vivo but not in vitro, suggesting cell nonautonomous mechanisms for the increased cycling. Id1(-/-) HSCs developed normally when transplanted into Id1(+/+) mice, whereas the development of Id1(+/+) HSCs was impaired in Id1(-/-) recipients undergoing transplantation and reproduced the hematologic features of Id1(-/-) mice, indicating that the Id1(-/-) microenvironment cannot support normal hematopoietic development. Id1(-/-) stromal cells showed altered production of cytokines in vitro, and cytokine levels were deregulated in vivo, which could account for the Id1(-/-) hematopoietic phenotypes. Thus, Id1 is required for regulating the hematopoietic progenitor cell niche but is dispensable for maintaining HSCs.