In vitro bioreactor-based cultures are being extensively investigated for large-scale production of differentiated cells from embryonic stem cells (ESCs). However, it is unclear whether in vitro ESC-derived progenitors have similar gene expression profiles and functionalities as their in vivo counterparts. This is crucial in establishing the validity of ESC-derived cells as replacements for adult-isolated cells for clinical therapies. In this study, we compared the gene expression profiles of Lin-ckit+Sca-1+ (LKS) cells generated in vitro from mouse ESCs using either static or bioreactor-based cultures, with that of native LKS cells isolated from mouse fetal liver (FL) or bone marrow (BM). We found that in vitro-generated LKS cells were more similar to FL- than to BM LKS cells in gene expression. Further, when compared to cells derived from bioreactor cultures, static culture-derived LKS cells showed fewer differentially expressed genes relative to both in vivo LKS populations. Overall, the expression of hematopoietic genes was lower in ESC-derived LKS cells compared to cells from BM and FL, while the levels of non-hematopoietic genes were up-regulated. In order to determine if these molecular profiles correlated with functionality, we evaluated ESC-derived LKS cells for in vitro hematopoietic-differentiation and colony formation (CFU assay). Although static culture-generated cells failed to form any colonies, they did differentiate into CD11c+ and B220+ cells indicating some hematopoietic potential. In contrast, bioreactor-derived LKS cells, when differentiated under the same conditions failed to produce any B220+ or CD11c+ cells and did not form colonies, indicating that these cells are not hematopoietic progenitors. We conclude that in vitro culture conditions significantly affect the transcriptome and functionality of ESC-derived LKS cells and although in vitro differentiated LKS cells were lineage negative and expressed both ckit and Sca-1, these cells, especially those obtained from dynamic cultures, are significantly different from native cells of the same phenotype.