Vascular endothelial growth factor (VEGF) signaling is required for both differentiation and proliferation of vascular endothelium. Analysis of differentiated embryonic stem cells with one or both VEGF-A alleles deleted showed that both the differentiation and the expansion of endothelial cells are blocked during vasculogenesis. Blood island formation was reduced by half in hemizygous mutant VEGF cultures and by 10-fold in homozygous mutant VEGF cultures. Homozygous mutant cultures could be partially rescued by the addition of exogenous VEGF. RNA levels for the endothelial adhesion receptors ICAM-2 and PECAM were reduced in homozygous mutant cultures, but ICAM-2 RNA levels decreased substantially, whereas PECAM RNA levels remained at hemizygous levels. The quantitative data correlated with the antibody staining patterns because cells that were not organized into vessels expressed PECAM but not ICAM-2. These PECAM+ cell clumps accumulated in mutant cultures as vessel density decreased, suggesting that they were endothelial cell precursors blocked from maturation. A subset of PECAM+ cells in clumps expressed stage-specific embryonic antigen-1 (SSEA-1), and all were ICAM-2(-) and CD34(-), whereas vascular endothelial cells incorporated into vessels were PECAM(+), ICAM-2(+), CD34(+), and SSEA-1(-). Analysis of flk-1 expression indicated that a subset of vascular precursor cells coexpressed PECAM and flk-1. These data suggest that VEGF signaling acts in a dose-dependent manner to affect both a specific differentiation step and the subsequent expansion of endothelial cells. (Blood. 2000;95:1979-1987)