Beta-arrestin1 is a multifunctional protein critically involved in signal transduction. Recently, it is also identified as a nuclear transcriptional regulator, but the underlying mechanisms and physiological significance remain to be explored. Here, we identified beta-arrestin1 as an evolutionarily conserved protein essential for zebrafish development. Zebrafish embryos depleted of beta-arrestin1 displayed severe posterior defects and especially failed to undergo hematopoiesis. In addition, the expression of cdx4, a critical regulator of embryonic blood formation, and its downstream hox genes were downregulated by depletion of beta-arrestin1, while injection of cdx4, hoxa9a or hoxb4a mRNA rescued the hematopoietic defects. Further mechanistic studies revealed that beta-arrestin1 bound to and sequestered the polycomb group (PcG) recruiter YY1, and relieved PcG-mediated repression of cdx4-hox pathway, thus regulating hematopoietic lineage specification. Taken together, this study demonstrated a critical role of beta-arrestin1 during zebrafish primitive hematopoiesis, as well as an important regulator of PcG proteins and cdx4-hox pathway.