Several lines of transgenic mice were produced by pronuclear injection of a full‐length cDNA encoding a mutant dihydrofolate reductase (DHFR, E.C. 1.5.1.3). The mutation causes altered enzyme kinetics for folate reduction as well as low affinity for methotrexate (MTX). One line of mice carrying the plasmid displays a moderate‐to‐severe anemia that is evident in fetuses and newborn mice and that moderates with age. RNA studies revealed high levels of transcription of the mutant gene in the fetal and adult liver, and low or absent expression in adult bone marrow. Transcription of the mutant gene was not found in the fetal liver of other pedigrees examined. The data thus suggest that expression of this mutant gene in the main hematopoietic organ of the fetus adversely affects erythropoiesis by altering the cellular environment for erythroid differentiation, and that translocation of the site of hematopoiesis to bone marrow, where the foreign gene is not expressed, leads to normalization of red cell production.