The formation of hematopoietic stem cells during development occurs by a multistep process that begins with the induction of ventral mesoderm. This mesoderm is patterned during gastrulation by a bone morphogenetic protein (BMP) signaling pathway that is mediated, at least in part, by members of the Mix and Vent families of homeobox transcription factors. Following gastrulation, a subset of ventral mesoderm is specified to become hematopoietic stem cells. Key determinants of hematopoietic fate include the product of the zebrafish cloche gene and the basic helix-loop-helix transcription factor SCL. Future studies in Xenopus and zebrafish should reveal other critical factors in this developmental pathway.