Myelodysplastic syndromes (MDSs) are clonal hematopoietic stem cell disorders characterized by ineffective hematopoiesis. Anemia is the defining cytopenia of MDS patients, yet the molecular mechanisms for dyserythropoiesis in MDSs remain to be fully defined. Recent studies have revealed that heterozygous loss-of-function mutation of DNA dioxygenase TET2 is 1 of the most common mutations in MDSs and that TET2 deficiency disturbs erythroid differentiation. However, mechanistic insights into the role of TET2 on disordered erythropoiesis are not fully defined. Here, we show that TET2 deficiency leads initially to stem cell factor (SCF)–dependent hyperproliferation and impaired differentiation of human colony-forming unit–erythroid (CFU-E) cells, which were reversed by a c-Kit inhibitor. We further show that this was due to increased phosphorylation of c-Kit accompanied by decreased expression of phosphatase SHP-1, a negative regulator of c-Kit. At later stages, TET2 deficiency led to an accumulation of a progenitor population, which expressed surface markers characteristic of normal CFU-E cells but were functionally different. In contrast to normal CFU-E cells that require only erythropoietin (EPO) for proliferation, these abnormal progenitors required SCF and EPO and exhibited impaired differentiation. We termed this population of progenitors “marker CFU-E” cells. We further show that AXL expression was increased in marker CFU-E cells and that the increased AXL expression led to increased activation of AKT and ERK. Moreover, the altered proliferation and differentiation of marker CFU-E cells were partially rescued by an AXL inhibitor. Our findings document an important role for TET2 in erythropoiesis and have uncovered previously unknown mechanisms by which deficiency of TET2 contributes to ineffective erythropoiesis.