Hmgb3 is a member of a family of chromatin-binding proteins that can alter DNA structure to facilitate transcription factor binding. We identified the Hmgb3 cDNA in a subtractive hybridization screen for transcripts that are preferentially expressed in hematopoietic stem cells. We inserted an internal ribosomal entry site-green fluorescence protein cassette into the 3' untranslated region of the X-linked Hmgb3 locus to identify Hmgb3-expressing cells. In adult mice, Hmgb3 mRNA is detected in bone marrow cells, primitive Lin-, c-kit+, Sca-1+, IL-7Ralpha- cells, and Ter119+ erythroid cells. We observed that long-term repopulating ability is entirely contained in the subpopulation of Lin-, c-kitHI cells that express Hmgb3. Most common lymphoid and myeloid progenitors express Hmgb3. Introduction of a retrovirus containing the Hmgb3 cDNA into mouse bone marrow stem cells demonstrated that enforced expression of Hmgb3 inhibited B-cell and myeloid differentiation. We conclude that down-regulation of Hmgb3 protein levels is an important step for myeloid and B-cell differentiation.