To explore the etiology of congenital hypoplastic anemia (CHA) or the Diamond-Blackfan anemia, erythropoietin responsive committed erythroid precursors were enumerated by the plasma clot method. These included blood and marrow erythroid burst-forming units (BFU-E) and marrow erythroid colony-forming units (CFU-E). The peripheral blood nucleated cells of 11 patients and the marrow cells of seven of these patients were examined. Studies were repeated in several patients during relapse and after induction of remission. BFU-E were undetectable in the marrow and blood of all but one relapsed patient, and the numbers of marrow CFU-E were depressed in all relapsed patients. Blood BFU-E remained low in all of the patients in remission. No evidence was obtained for suppression of normal CFU-E or BFU-E by CHA lymphocytes. Erythropoietin dose-response curves performed in two patients revealed a 10-fold increase in erythropoietin requirement for marrow CFU-E colony growth. This marked unresponsiveness to erythropoietin was strikingly improved by steroid therapy in one patient. We suggest that CHA is the result of a qualitative and/or quantitative deficiency of BFU-E. If BFU-E are produced, they must be relatively unresponsive to erythropoietin. The abnormal BFU-E give rise to erythropoietin unresponsive CFU-E and, thence, to proerythroblasts that are, in turn, trapped in that early stage of development because of their poor erythropoietic response. Hence, red cell production is deficient. Steroids appear to improve the erythropoietin response of CHA erythroid precursors.