The zinc finger transcription factor GATA-1 is essential for erythropoiesis. In its absence, committed erythroid precursors arrest at the proerythroblast stage of development and undergo apoptosis. To study the function of GATA-1 in an erythroid cell environment, we generated an erythroid cell line from in vitro-differentiated GATA-1⁻ murine embryonic stem (ES) cells. These cells, termed G1E for GATA-1⁻ erythroid, proliferate as immature erythroblasts yet complete differentiation upon restoration of GATA-1 function. We used rescue of terminal erythroid maturation in G1E cells as a stringent cellular assay system in which to evaluate the functional relevance of domains of GATA-1 previously characterized in nonhematopoietic cells. At least two major differences were established between domains required in G1E cells and those required in nonhematopoietic cells. First, an obligatory transactivation domain defined in conventional nonhematopoietic cell transfection assays is dispensable for terminal erythroid maturation. Second, the amino (N) zinc finger, which is nonessential for binding to the vast majority of GATA DNA motifs, is strictly required for GATA-1-mediated erythroid differentiation. Our data lead us to propose a model in which a nuclear cofactor(s) interacting with the N-finger facilitates transcriptional action by GATA-1 in erythroid cells. More generally, our experimental approach highlights critical differences in the action of cell-specific transcription proteins in different cellular environments and the power of cell lines derived from genetically modified ES cells to elucidate gene function.