Fanconi anemia (FA) is a chromosomal instability disorder characterized by a progressive bone marrow (BM) failure and an increased incidence of myeloid leukemias. Children with FA are currently being enrolled in clinical trials to evaluate the safety of retroviral-mediated gene transfer. Previously, we usedFancc^−/− mice to show thatFancc^−/− hematopoietic stem cells (HSCs) have a profound defect in repopulating ability. Here, we examined whether retroviral-mediated gene transfer of recombinantFancc (rFancc) would restore the repopulating ability of Fancc^−/− HSC to wild-type levels. Fancc^−/− HSCs transduced with a retrovirus encoding rFancc exhibited a repopulating ability that approached wild-type levels. Interestingly, ∼30% of primary recipients (7 of 22) transplanted with uncorrectedFancc^−/− cells developed a range of hematopoietic abnormalities including pancytopenia and BM hypoplasia similar to individuals with FA. Hematopoietic abnormalities were detected in only 1 of 22 mice transplanted withFancc^−/− cells transduced with a retrovirus encoding rFancc. Moreover, several mice with hematopoietic defects had progenitors that displayed a marked resistance to IFN-γ, TNF-α, and MIP-1α compared to both Fancc^−/−progenitors, which are uniquely hypersensitive to these cytokines, and wild-type progenitors. These data are analogous to studies using progenitors from patients with myelodysplasia and provide functional support for clonal evolution in these mice. Collectively, these data show that gene transfer can enhance HSC repopulating ability and suppresses the tendency for clonal evolution. These studies also reveal potential detrimental effects of ex vivo manipulation for untransducedFancc^−/− HSCs.