Mitochondrial tRNA taurine modifications mediated by mitochondrial tRNA translation optimization 1 (Mto1) is essential for the mitochondrial protein translation. Mto1 deficiency was shown to induce proteostress in embryonic stem cells. Recently a patient with MTO1 gene mutation presented with severe anemia was reported, which led us to hypothesize that Mto1 dysfunctions may result in defective erythropoiesis. Hematopoietic-specific Mto1 conditional knockout (cKO) mice were embryonic lethal due to niche-independent defective terminal erythroid differentiation. Mechanistically, mitochondrial oxidative phosphorylation complexes were severely impaired in the Mto1 cKO fetal liver and this was followed by cytoplasmic iron accumulation. Overloaded cytoplasmic iron promoted heme biosynthesis, which induced an unfolded protein response via the IRE1-Xbp1 signaling pathway in Mto1 cKO erythroblasts. An iron chelator rescued erythroid terminal differentiation in the Mto1 cKO fetal liver in vitro. This novel non-energy-related mitochondrial iron homeostasis revealed the indispensable role of mitochondrial tRNA modification in hematopoiesis.