Most studies on malaria-parasite digestion of hemoglobin (Hb) have been performed using P. falciparum maintained in mature erythrocytes, in vitro. In this study, we examine Plasmodium Hb degradation in vivo in mice, using the parasite P. berghei, and show that it is possible to create mutant parasites lacking enzymes involved in the initial steps of Hb proteolysis. These mutants only complete development in reticulocytes and mature into both schizonts and gametocytes. Hb degradation is severely impaired and large amounts of undigested Hb remains in the reticulocyte cytoplasm and in vesicles in the parasite. The mutants produce little or no hemozoin (Hz), the detoxification by-product of Hb degradation. Further, they are resistant to chloroquine, an antimalarial drug that interferes with Hz formation, but their sensitivity to artesunate, also thought to be dependent on Hb degradation, is retained. Survival in reticulocytes with reduced or absent Hb digestion may imply a novel mechanism of drug resistance. These findings have implications for drug development against human-malaria parasites, such as P. vivax and P. ovale, which develop inside reticulocytes.