Hematopoietic and endothelial cells may be derived from a common precursor cell (hemangioblast) during embryogenesis; however, some evidence suggests that hematopoietic cells may emerge from endothelial cells. The onset of definitive hematopoiesis at E8.25 in the murine embryo is marked by high-level CD41 expression. We questioned whether these hematopoietic cells were derived directly from mesoderm cells or emerged from endothelium. At 8.25 days post coitus (dpc), CD41 was coexpressed with CD31, CD34, and Flk1 in some intraluminal round cells that appeared to arise from flattened endothelial cells lining yolk sac capillary vessels. Cell-sorting studies revealed that all subpopulations of cells expressing CD41 possessed hematopoietic activity. Surprisingly, Tie2(+)Flk1(+) cells, a phenotype enriched in adult endothelial progenitors, also displayed some hematopoietic progenitor activity in vitro, but this activity was restricted to the CD41(+) fraction; only endothelial cells were derived from freshly isolated Tie2 (+)Flk1(bright) CD41() cells. Tie2(+)Flk1(dim)CD41() 8.25-dpc yolk sac cells devoid of hematopoietic progenitor activity gave rise to endothelial-like capillary networks in vitro and differentiated upon co-culture with OP9 stromal cells into definitive hematopoietic progenitors. These results demonstrate that CD41-expressing definitive hematopoietic cells appear to arise from endothelial cells lining nascent capillaries in vivo.