Hemangioblasts are thought to be one of the sources of hematopoietic progenitors, yet little is known about their localization and fate in the mouse embryo. We show here that a subset of cells co-expressing the hematopoietic marker GATA-1 and the endothelial marker VE-cadherin localize on the yolk sac blood islands at embryonic day 7.5. Clonal analysis demonstrated that GATA-1(+) cells isolated from E7.0-7.5 embryos include a common precursor for hematopoietic and endothelial cells. Moreover, this precursor possesses primitive and definitive hematopoietic bipotential. By using a transgenic complementation rescue approach, GATA-1(+) cell-derived progenitors were selectively restored in Runx1-deficient mice. In the rescued mice, definitive erythropoiesis was recovered but the rescued progenitors did not display multilineage hematopoiesis or intra-aortic hematopoietic clusters. These results provide evidence of the presence of GATA-1(+) hemangioblastic cells in the extra-embryonic region and also their functional contribution to hematopoiesis in the embryo.