With the aim of finding small molecules that stimulate erythropoiesis earlier than erythropoietin and that enhance erythroid colony-forming unit (CFU-E) production, we studied the mechanism by which glucocorticoids increase CFU-E formation. Using erythroid burst-forming unit (BFU-E) and CFU-E progenitors purified by a new technique, we demonstrate that glucocorticoids stimulate the earliest (BFU-E) progenitors to undergo limited self-renewal, which increases formation of CFU-E cells > 20-fold. Interestingly, glucocorticoids induce expression of genes in BFU-E cells that contain promoter regions highly enriched for hypoxia-induced factor 1α (HIF1α) binding sites. This suggests activation of HIF1α may enhance or replace the effect of glucocorticoids on BFU-E self-renewal. Indeed, HIF1α activation by a prolyl hydroxylase inhibitor (PHI) synergizes with glucocorticoids and enhances production of CFU-Es 170-fold. Because PHIs are able to increase erythroblast production at very low concentrations of glucocorticoids, PHI-induced stimulation of BFU-E progenitors thus represents a conceptually new therapeutic window for treating erythropoietin-resistant anemia.