Single cell transcriptomics offers unique insights into rare cell lineages and differentiation pathways within organs. However, the determination of differential gene expression between normal and genetically modified cells is a significant challenge for the research community. We used scRNA-seq combined with ChIP-seq to decode the transcriptional regulation of definitive blood cell differentiation during fetal liver expansion. We used the 10x Genomics Chromium platform to isolate 15,000 (stem and progenitor) cells from wild type and Klf1-/- E13.5 fetal liver. We obtained ~100,000 reads/cell by sequencing on an Illumina NovaSeq-6000. The bioinformatics pipeline included dimensionality reduction, clustering and visualizations using UMAP and PHATE. Quality control, filtering and normalization was performed in Seurat (R-Bioconductor). We employed Slingshot to generate lineage, or pseudo-time trajectories to enable differential gene expression analyses of normal versus Klf1-/- erythropoiesis with tradeSeq. We found mutually exclusive expression of Klf1 and Fli1 at an inflection point that defines the erythroid-megakaryocyte demarcation boundary. We found Klf1-/- progenitor cell differentiation from MEPs to BFUes is delayed and corrupted with aberrant expression of TFs that are normally restricted to megakaryocyte and myeloid lineages within erythroid cells. This leads to lineage infidelity with expression of megakaryocyte markers on erythroid cells and a three-fold increase in platelet production in Klf1-/- embryos. We found globin gene dysregulation with aberrant activation of embryonic globin genes in Klf1-/- progenitor cells and identified a number of direct (by ChIP-seq) TF targets of KLF1 that likely mediate the globin gene switching defect. We were also able to dissect dynamic temporal changes in genes that regulate the cell cycle from MEPs to erythroblasts and show many are direct targets of KLF1. Together this work provides new insights into the cellular complexity and dynamic transcriptional regulation of stem, progenitor and early erythroid cell compartments at the onset of definitive haematopoiesis.