Patients and animals bearing tumors have increased levels of CD34(+) progenitor cells, which are capable of developing into dendritic cells. However, addition of medium conditioned by murine Lewis lung carcinoma cells increases the cellularity of the CD34(+) cell cultures and redirects their differentiation into endothelial cells. The resulting cells resemble endothelial cells phenotypically as well as functionally by their capacity to reorganize into cord structures. Mechanisms by which tumors induced the increased cellularity and skewing toward endothelial cells were examined. Tumor-derived VEGF contributed to the increase in cellularity, but not to the redirection of differentiation. Differentiation into endothelial cells was blocked with sTie-2, suggesting tumor-derived angiopoietins in skewing differentiation. These studies show the capacity of tumors to skew progenitor cell development toward endothelial cells and define the mediators that contribute to endothelial cell development.