Hematopoietic stem cells and multipotent progenitors exhibit low-level transcription and partial chromatin reorganization of myeloid cell-specific genes including the c-fms (csf1R) locus. Expression of the c-fms gene is dependent on the Ets family transcription factor PU.1 and is upregulated during myeloid differentiation, enabling committed macrophage precursors to respond to colony-stimulating factor 1. To analyze molecular mechanisms underlying the transcriptional priming and developmental upregulation of the c-fms gene, we have utilized myeloid progenitors lacking the transcription factor PU.1. PU.1 can bind to sites in both the c-fms promoter and the c-fms intronic regulatory element (FIRE enhancer). Unlike wild-type progenitors, the PU.1(-/-) cells are unable to express c-fms or initiate macrophage differentiation. When PU.1 was reexpressed in mutant progenitors, the chromatin structure of the c-fms promoter was rapidly reorganized. In contrast, assembly of transcription factors at FIRE, acquisition of active histone marks, and high levels of c-fms transcription occurred with significantly slower kinetics. We demonstrate that the reason for this differential activation was that PU.1 was required to promote induction and binding of a secondary transcription factor, Egr-2, which is important for FIRE enhancer activity. These data suggest that the c-fms promoter is maintained in a primed state by PU.1 in progenitor cells and that at FIRE PU.1 functions with another transcription factor to direct full activation of the c-fms locus in differentiated myeloid cells. The two-step mechanism of developmental gene activation that we describe here may be utilized to regulate gene activity in a variety of developmental pathways.