The Pebpb2 gene encodes a non-DNA binding subunit of the heterodimeric transcription factor, polyomavirus enhancer binding protein 2/core binding factor (PEBP2/CBF), and is rearranged in inversion of chromosome 16 associated with human acute myeloid leukemia. To investigate its physiological function, Pebpb2 was mutated by a targeting strategy to generate a null mutant. The homozygous mutation in mice proved lethal in embryos around embryonic day 12.5, apparently due to massive hemorrhaging in the central nervous system. In addition, definitive hematopoiesis in the liver was severely impaired. The observed phenotype was indistinguishable from that reported for homozygous disruption of AML1, which encodes a DNA binding subunit of PEBP2/CBF. Thus, the results indicate that the two subunits function together as a heterodimeric PEBP2/CBF in vivo and that PEBP2/CBF plays an essential role in the development of definitive hematopoiesis.