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We report that embryonic stem cells efficiently undergo differentiation in vitro to mesoderm and hematopoietic cells and that this in vitro system recapitulates days 6.5 to 7.5 of mouse hematopoietic development. Embryonic stem cells differentiated as embryoid bodies (EBs) develop erythroid precursors by day 4 of differentiation, and by day 6, more than 85% of EBs contain such cells. A comparative reverse transcriptase-mediated polymerase chain reaction profile of marker genes for primitive endoderm (collagen alpha IV) and mesoderm (Brachyury) indicates that both cell types are present in the developing EBs as well in normal embryos prior to the onset of hematopoiesis. GATA-1, GATA-3, and vav are expressed in both the EBs and embryos just prior to and/or during the early onset of hematopoiesis, indicating that they could play a role in the early stages of hematopoietic development both in vivo and in vitro. The initial stages of hematopoietic development within the EBs occur in the absence of added growth factors and are not significantly influenced by the addition of a broad spectrum of factors, including interleukin-3 (IL-3), IL-1, IL-6, IL-11, erythropoietin, and Kit ligand. At days 10 and 14 of differentiation, EB hematopoiesis is significantly enhanced by the addition of both Kit ligand and IL-11 to the cultures. Kinetic analysis indicates that hematopoietic precursors develop within the EBs in an ordered pattern. Precursors of the primitive erythroid lineage appear first, approximately 24 h before precursors of the macrophage and definitive erythroid lineages. Bipotential neutrophil/macrophage and multilineage precursors appear next, and precursors of the mast cell lineage develop last. The kinetics of precursor development, as well as the growth factor responsiveness of these early cells, is similar to that found in the yolk sac and early fetal liver, indicating that the onset of hematopoiesis within the EBs parallels that found in the embryo.