We report a rapid and highly efficient approach to generate mice in which the hematopoietic system is derived from embryonic stem (ES) cells. We show that ES cells injected into blastocysts from the c-kit-deficient W(41)/W(41) mouse strain have a clear advantage over the W(41)/W(41) blastocyst-derived inner cell mass cells in founding the hematopoietic system. Fetal liver hematopoietic stem cells from W(41)/W(41) blastocyst complementation embryos can be transplanted to establish large cohorts of bone marrow chimeras with hematopoiesis of practically pure ES-cell origin. Using ES cells with site-directed modifications, we show how this system can be used to drive inducible transgene expression in hematopoietic cells in a robust and reliable manner both in vitro and in vivo. The approach avoids the cost and time constraints associated with the creation of standard transgenic mouse strains while taking advantage of the sophisticated site-directed manipulations that are possible in ES cells.