The application of RNA interference (RNAi) to stem cell-based therapies will require highly specific and lineage-restricted gene silencing. Here we show the feasibility and therapeutic potential of coregulating transgene expression and RNAi in hematopoietic stem cells. We encoded promoterless small-hairpin RNA (shRNA) within the intron of a recombinant gamma-globin gene. Expression of both gamma-globin and the lariat-embedded small interfering RNA (siRNA) was induced upon erythroid differentiation, specifically downregulating the targeted gene in tissue- and differentiation stage-specific fashion. The position of the shRNA within the intron was critical to concurrently achieve high-level transgene expression, effective siRNA generation and minimal interferon induction. Lentiviral transduction of CD34(+) cells from patients with sickle cell anemia led to erythroid-specific expression of the gamma-globin transgene and concomitant reduction of endogenous beta(S) transcripts, thus providing proof of principle for therapeutic strategies that require synergistic gene addition and gene silencing in stem cell progeny.