Our mechanistic understanding of Fanconi anemia (FA) pathway function in hematopoietic stem and progenitor cells (HSPCs) owes much to their role in experimentally induced DNA crosslink lesion repair. In bone marrow HSPCs, unresolved stress confers p53-dependent apoptosis and progressive cell attrition. The role of FA proteins during hematopoietic development, in the face of physiological replicative demand, remains elusive. Here, we reveal a fetal HSPC pool in Fancd2-/- mice with compromised clonogenicity and repopulation. Without experimental manipulation, fetal Fancd2-/- HSPCs spontaneously accumulate DNA strand breaks and RAD51 foci, associated with a broad transcriptional DNA-damage response, and constitutive activation of ATM as well as p38 stress kinase. Remarkably, the unresolved stress during rapid HSPC pool expansion does not trigger p53 activation and apoptosis; rather, it constrains proliferation. Collectively our studies point to a role for the FA pathway during hematopoietic development and provide a new model for studying the physiological function of FA proteins.