Transcriptional repression mechanisms are important during differentiation of multipotential hematopoietic progenitors, where they are thought to regulate lineage commitment and to extinguish alternative differentiation programs. PU.1 and GATA-1 are two critical hematopoietic transcription factors that physically interact and mutually antagonize each other's transcriptional activity and ability to promote myeloid and erythroid differentiation, respectively. We find that PU.1 inhibits the erythroid program by binding to GATA-1 on its target genes and organizing a complex of proteins that creates a repressive chromatin structure containing lysine-9 methylated H3 histones and heterochromatin protein 1. Although these features are thought to be stable aspects of repressed chromatin, we find that silencing of PU.1 expression leads to removal of the repression complex, loss of the repressive chromatin marks and reactivation of the erythroid program. This process involves incorporation of the replacement histone variant H3.3 into nucleosomes. Repression of one transcription factor bound to DNA by another transcription factor not on the DNA represents a new mechanism for downregulating an alternative gene expression program during lineage commitment of multipotential hematopoietic progenitors.