Organogenesis is dependent on the formation of distinct cell types within the embryo. Important to this process are the hox genes, which are believed to confer positional identities to cells along the anteroposterior axis. Here, we have identified the caudal-related gene cdx4 as the locus mutated in kugelig (kgg), a zebrafish mutant with an early defect in haematopoiesis that is associated with abnormal anteroposterior patterning and aberrant hox gene expression. The blood deficiency in kgg embryos can be rescued by overexpressing hoxb7a or hoxa9a but not hoxb8a, indicating that the haematopoietic defect results from perturbations in specific hox genes. Furthermore, the haematopoietic defect in kgg mutants is not rescued by scl overexpression, suggesting that cdx4 and hox genes act to make the posterior mesoderm competent for blood development. Overexpression of cdx4 during zebrafish development or in mouse embryonic stem cells induces blood formation and alters hox gene expression. Taken together, these findings demonstrate that cdx4 regulates hox genes and is necessary for the specification of haematopoietic cell fate during vertebrate embryogenesis.