The molecular mechanisms that regulate the formation of the lymphatic vascular system remain poorly characterized. Whereas studies in embryonic stem (ES) cells have provided major new insights into the mechanisms of blood vessel formation, the development of lymphatic endothelium has not been previously observed. We established embryoid bodies (EBs) from murine ES cells in the presence or absence of lymphangiogenic growth factors. We found that lymphatic endothelial cells develop at day 18 after EB formation. These cells express CD31 and the lymphatic lineage markers Prox-1 and Lyve-1, but not the vascular marker MECA-32, and they frequently sprout from preexisting blood vessels. Lymphatic vessel formation was potently promoted by VEGF-A and VEGF-C but not by bFGF. Our results reveal, for the first time, that ES cells can differentiate into lymphatic endothelial cells, and they identify the EB assay as a powerful new tool to dissect the molecular mechanisms that control lymphatic vessel formation.