Hydroxyurea (HU), a drug effective in the treatment of sickle cell disease, is thought to indirectly promote fetal hemoglobin (Hb F) production by perturbing the maturation of erythroid precursors. The molecular mechanisms involved in HU-mediated regulation of gamma-globin expression are currently unclear. We identified an HU-induced small GTP-binding protein, secretion-associated and ras-related (SAR), in adult erythroid cells using differential display. Stable SAR expression in K562 cells increased gamma-globin mRNA expression and resulted in macrocytosis and cells that appeared immature. SAR-mediated induction of gamma-globin also inhibited K562 cell growth by causing arrest in G1/S, apoptosis, and delay of maturation, cellular changes consistent with the previously known effects of HU on erythroid cells. SAR also enhanced both gamma- and beta-globin transcription in primary bone marrow CD34+ cells, with a greater effect on gamma-globin than on beta-globin. Though upregulation of GATA-2 and p21 were observed both in SAR-expressing cells and HU-treated K562 cells, PI3 kinase and phosphorylated ERK were inhibited specifically in SAR-expressing cells. These data reveal a novel role of SAR distinct from its previously known protein trafficking function. We suggest that SAR may participate in both erythroid cell growth and gamma-globin production by regulating PI3 kinase/ERK and GATA-2/p21-dependent signal transduction pathways.