Hematopoiesis initiates in the extraembryonic yolk sac. To isolate various types of precursor cells from this blood cell-forming tissue, yolk sac cells were immortalized by retroviral-mediated expression of the HOX11 homeobox-containing gene. Among the cell lines derived, some were able to spontaneously generate adherent stromal-like cells capable of taking up acetylated low-density lipoprotein, and they could be induced to form tubelike structures when cultured on Matrigel. Although these cell lines were negative for hematopoietic cell surface markers, they gave rise to hematopoietic colonies--containing cells belonging to the monocytic, megakaryocytic, and definitive erythroid lineages--when plated in methylcellulose medium supplemented with hematopoietic growth factors. Low amounts of Flk-1 mRNA could be detected in these cells, and they showed significant responsiveness to vascular endothelial growth factor, stem cell factor, basic fibroblast growth factor, and interleukin 6. They also expressed the transcription factors SCL, GATA2, GATA1, PU.1, and c-myb. These yolk sac-derived cell lines may represent a transitional stage of early hematopoietic development.