Xylem provides long-distance transport of water and nutrients as well as structural support in plants. The development of the xylem tissues is modulated by several internal signals. In the last decades, the bloom of genetic and genomic tools has led to increased understanding of the molecular mechanisms underlying the function of the traditional plant hormones in xylem specification and differentiation. Critical functions have been assigned to novel signaling molecules, such as thermospermine. These signals do not function independently, but interact in a manner we are only now beginning to understand. We review the current knowledge of hormone signaling pathways and their crosstalk in cambial cell initiation and maintenance, and in xylem specification and differentiation.