Genetic studies in mice have previously demonstrated an intrinsic requirement for the vascular endothelial growth factor (VEGF) receptor Flk-1 in the early development of both the hematopoietic and endothelial cell lineages. In this study, embryonic stem (ES) cells homozygous for a targeted null mutation in flk-1 (flk-1 (-/-)) were examined for their hematopoietic potential in vitro during embryoid body (EB) formation or when cultured on the stromal cell line OP9. Surprisingly, in EB cultures flk-1 (-/-) ES cells were able to differentiate into all myeloid-erythroid lineages, albeit at half the frequency of heterozygous lines. In contrast, although flk-1 (-/-) ES cells formed mesodermal-like colonies on OP9 monolayers, they failed to generate hematopoietic clusters even in the presence of exogenous cytokines. However, flk-1 (-/-) OP9 cultures did contain myeloid precursors, albeit at greatly reduced percentages. This defect was rescued by first allowing flk-1 (-/-) ES cells to differentiate into EBs and then passaging these cells onto OP9 stroma. Thus, the requirement for Flk-1 in early hematopoietic development can be abrogated by alterations in the microenvironment. This finding is consistent with a role for Flk-1 in regulating the migration of early mesodermally derived precursors into a microenvironment that is permissive for hematopoiesis.