Hematopoiesis, the dynamic process of blood cell development, is regulated by the activity of the bone morphogenetic protein (BMP) signaling pathway and by many transcription factors. However, the molecules and mechanisms that regulate BMP/Smad signaling in hematopoiesis are largely unknown. Here, we show that the Integrator complex, an evolutionarily conserved group of proteins, functions in zebrafish hematopoiesis by modulating Smad/BMP signaling. The Integrator complex proteins are known to directly interact with RNA polymerase II to mediate 3' end processing of U1 and U2 snRNAs. We have identified several subunits of the Integrator complex in zebrafish. Antisense morpholino-mediated knockdown of the Integrator subunit 5 (Ints5) in zebrafish embryos affects U1 and U2 snRNA processing, leading to aberrant splicing of smad1 and smad5 RNA, and reduced expression of the hematopoietic genes stem cell leukemia (scl, also known as tal1) and gata1. Blood smears from ints5 morphant embryos show arrested red blood cell differentiation, similar to scl-deficient embryos. Interestingly, targeting other Integrator subunits also leads to defects in smad5 RNA splicing and arrested hematopoiesis, suggesting that the Ints proteins function as a complex to regulate the BMP pathway during hematopoiesis. Our work establishes a link between the RNA processing machinery and the downstream effectors of BMP signaling, and reveals a new group of proteins that regulates the switch from primitive hematopoietic stem cell identity and blood cell differentiation by modulating Smad function.