To explore the etiology of congenital hypoplastic or Diamond-Blackfan anemia (DBA) we investigated in vitro erythropoiesis in nine patients. Of the nine, seven were clinically responsive to prednisone. Four were infants evaluated at the time of diagnosis. Six were never or were only minimally transfused. Those for whom prednisone had been prescribed had discontinued the drug a minimum of five months prior to study. The bone marrows of these nine patients were compared with those of hematologically normal individuals and with those of four patients with transient erythroblastopenia of childhood (TEC) whose erythroid aplasia was as severe as that of the patients with DBA. Using the plasma clot semisolid culture technique to enumerate erythroid progenitors and to evaluate the growth characteristics of the colonies to which they give rise, we concluded that at the onset of DBA: (a) erythroid progenitor frequency does not correlate with the degree of anemia and erythroblastopenia; (b) erythroid progenitor differentiation may in some cases be abnormally insensitive to crude preparations of erythropoietin; and (c) progenitor erythropoietin insensitivity in vitro does not necessarily indicate prednisone insensitivity in vivo. Thus, DBA does not appear to be solely the result of deficient formation of erythroid progenitors but is, in addition, a disorder that is due to defective progenitor differentiation in vivo.