The transforming growth factor-beta-related factor bone morphogenetic protein 4 (BMP4) is expressed in the human embryonic aorta-gonad-mesonephros (AGM) coincident with the emergence of haematopoietic cells and influences postnatal mammalian haematopoietic stem cells in vitro. To investigate the role of BMP4 in mammalian embryonic haematopoiesis, cells were isolated from murine AGM and two populations of CD34(+) cells with different levels of c-Kit expression and multipotency were identified. CD34(+)/c-Kit(high) cells express CD45 and are haematopoietic-restricted progenitors. In contrast, CD34(+)/c-Kit(low) cells are Flk1+/CD45(neg) and generate adherent colonies in ex vivo culture that resemble haemangioblast colonies identified in other systems. The addition of BMP4 to AGM cells resulted in expansion of the CD34(+)/c-Kit(low) cell pool within 48 h, via a combination of down modulation of the c-Kit receptor in CD34(+)/c-Kit(high) cells and proliferation. In long-term culture, BMP4 increased the growth/survival of CD34(+)/c-Kit(high) haematopoietic progenitors, effects that were blocked by BMP inhibitors. CD34(+)/c-Kit(high) progenitors cultured with BMP4 also generated adherent colonies typical of c-Kit(low) cells. These results suggest that BMP4 regulates c-Kit expression and differentiation potential in CD34(+) AGM cells and supports a role for BMP signalling in the maintenance of multipotency during embryonic haematopoiesis, providing an insight into stem cell homeostasis within the mammalian haematopoietic niche.