Murine embryonic stem cells can differentiate in vitro to form cystic embryoid bodies (CEB) that contain different structures and cell types. The blood islands are one such structure that consist of immature hematopoietic cells surrounded by endothelial cells, the first identifiable vascular cells. CEBs differentiated in vitro developed blood islands initially, and subsequently these blood islands matured to form vascular channels containing hematopoietic cells. Phase contrast microscopy demonstrated the presence of channels in mature CEBs grown in suspension culture, and high resolution light and electron microscopy showed that the cells lining these channels were endothelial cells. The channels appeared less organized than the vasculature of the mature yolk sac. The hematopoietic cells were occasionally seen 'flowing' through the CEB channels, although their numbers were reduced relative to the yolk sac. Analysis of primary CEB cultures showed the presence of cells with two characteristics of endothelial cells: approximately 30% of the cells labelled with fluorescent acetylated low density lipoprotein and a small number of cells were positive for von Willebrand's factor by immunostaining. Thus we conclude that a primitive vasculature forms in CEBs differentiated in vitro, and that not only primary differentiation of endothelial cells but also some aspects of vascular maturation are intrinsic to this cell culture system. CEBs are therefore a useful model for the study of developmental blood vessel formation.