In mouse mid-gestational embryos, definitive hematopoietic stem progenitor cells are derived directly from a very small proportion of the arterial endothelium. However, the physiological mechanisms restraining excessive endothelial-hematopoietic transition remain elusive. We show here that genetic deletion of Smad4 from the endothelium stage (using Tie2-Cre), but not from embryonic hematopoietic cells (using Vav-Cre), leads to a strikingly augmented emergence of intra-arterial hematopoietic clusters and an enhanced in vitro generation of hematopoietic progenitors, with no increase in the proliferation and survival of hematopoietic cluster cells. This finding indicates a temporally restricted negative effect of Smad4 on the endothelial to hematopoietic progenitor transition. Furthermore, the absence of endothelial Smad4 causes an increased expression of subaortic bone morphogenetic protein 4 and an activation of aortic extracellular signal-regulated kinase, thereby resulting in the excessive generation of blood cells. Collectively, our data for the first time identify a physiological suppressor that functions specifically during the transition of endothelial cells to hematopoietic progenitors and further suggest that endothelial Smad4 is a crucial modulator of the subaortic microenvironment that controls the hematopoietic fate of the aortic endothelium.