Recent studies have begun to elucidate how the endothelial lineage is specified from the nascent mesoderm. However, the molecular mechanisms which regulate this process remain largely unknown. We hypothesized that Notch signaling might play an important role in specifying endothelial progenitors from the mesoderm, given that this pathway acts as a bipotential cell-fate switch on equipotent progenitor populations in other settings. We found that zebrafish embryos with decreased levels of Notch signaling exhibited a significant increase in the number of endothelial cells, whereas embryos with increased levels of Notch signaling displayed a reduced number of endothelial cells. Interestingly, there is a concomitant gain of endothelial cells and loss of erythrocytes in embryos with decreased Notch activity, without an effect on cell proliferation or apoptosis. Lineage-tracing analyses indicate that the ectopic endothelial cells in embryos with decreased Notch activity originate from mesodermal cells that normally produce erythrocyte progenitors. Taken together, our data suggest that Notch signaling negatively regulates the number of endothelial cells by limiting the number of endothelial progenitors within the mesoderm, probably functioning as a cell-fate switch between the endothelial and the hematopoietic lineages.