Loss-of-function studies have demonstrated the essential role of Notch in definitive embryonic mouse hematopoiesis. We report here the consequences of Notch gain-of-function in mouse embryo hematopoiesis, achieved by constitutive expression of Notch1 intracellular domain (N1ICD) in angiopoietin receptor tyrosine kinase receptor-2 (Tie2)-derived enhanced green fluorescence protein (EGFP(+)) hematovascular progenitors. At E9.5, N1ICD expression led to the absence of the dorsal aorta hematopoietic clusters and of definitive hematopoiesis. The EGFP(+) transient multipotent progenitors, purified from E9.5 to 10.5 Tie2-Cre;N1ICD yolk sac (YS) cells, had strongly reduced hematopoietic potential, whereas they had increased numbers of hemogenic endothelial cells. Late erythroid cell differentiation stages and mature myeloid cells (Gr1(+), MPO(+)) were also strongly decreased. In contrast, EGFP(+) erythro-myeloid progenitors, immature and intermediate differentiation stages of YS erythroid and myeloid cell lineages, were expanded. Tie2-Cre;N1ICD YS had reduced numbers of CD41(++) megakaryocytes, and these produced reduced below-normal numbers of immature colonies in vitro and their terminal differentiation was blocked. Cells from Tie2-Cre;N1ICD YS had a higher proliferation rate and lower apoptosis than wild-type (WT) YS cells. Quantitative gene expression analysis of FACS-purified EGFP(+) YS progenitors revealed upregulation of Notch1-related genes and alterations in genes involved in hematopoietic differentiation. These results represent the first in vivo evidence of a role for Notch signaling in YS transient definitive hematopoiesis. Our results show that constitutive Notch1 activation in Tie2(+) cells hampers YS hematopoiesis of E9.5 embryos and demonstrate that Notch signaling regulates this process by balancing the proliferation and differentiation dynamics of lineage-restricted intermediate progenitors.