Accumulating studies support the idea that a common progenitor, termed the hemangioblast, generates both hematopoietic and endothelial cell lineages. To better define the relationship between these cell lineages, we have generated knock-in embryonic stem (ES) cells carrying a non-functional human CD4 at the Scl locus. By using in vitro differentiated Scl(+/CD4) ES cells, we demonstrate that FLK1 and SCL are molecular determinants of the hemangioblast. Furthermore, our studies demonstrate that hematopoietic and endothelial cells develop via distinct, sequential generation of FLK1 and SCL-expressing cells. FLK1(+)CD4(-) cells first arise in developing embryoid bodies. The Scl gene is turned on within FLK1(+)CD4(-) cells to give rise to FLK1(+)CD4(+) cells. Alternatively, a subpopulation of the initial FLK1(+)CD4(-) cells remains as SCL negative. Within the FLK1(+)CD4(+) cells, FLK1 is down regulated to generate FILK1(-)CD4(+) cells. Replating studies demonstrate that hematopoietic progenitors are enriched within FLK1(+)CD4(+) and FLK1(-)CD4(+) cells, while endothelial cells develop from FLK1(+)CD4(+) and FLK1(+)CD4(-) cell populations.