Oxygen radicals regulate many physiological processes, such as signaling, proliferation, and apoptosis, and thus play a pivotal role in pathophysiology and disease development. There are at least two thioredoxin reductase/thioredoxin/peroxiredoxin systems participating in the cellular defense against oxygen radicals. At present, relatively little is known about the contribution of individual enzymes to the redox metabolism in different cell types. To begin to address this question, we generated and characterized mice lacking functional mitochondrial thioredoxin reductase (TrxR2). Ubiquitous Cre-mediated inactivation of TrxR2 is associated with embryonic death at embryonic day 13. TrxR2^{TrxR2−/−minus;/TrxR2−/−minus;} embryos are smaller and severely anemic and show increased apoptosis in the liver. The size of hematopoietic colonies cultured ex vivo is dramatically reduced. TrxR2-deficient embryonic fibroblasts are highly sensitive to endogenous oxygen radicals when glutathione synthesis is inhibited. Besides the defect in hematopoiesis, the ventricular heart wall of TrxR2^{TrxR2−/−minus;/TrxR2−/−minus;} embryos is thinned and proliferation of cardiomyocytes is decreased. Cardiac tissue-restricted ablation of TrxR2 results in fatal dilated cardiomyopathy, a condition reminiscent of that in Keshan disease and Friedreich's ataxia. We conclude that TrxR2 plays a pivotal role in both hematopoiesis and heart function.