Hhex encodes a homeodomain-containing protein that functions as both a transcriptional repressor and activator, and is necessary for normal embryonic development. We previously reported that a null mutation of Hhex leads to abnormalities in vasculogenesis and have focused on identifying the transcriptional targets of Hhex necessary for vascular development. Here we report that the expression of ESM-1, a cysteine-rich protein expressed in the endothelium, is increased in Hhex(-/-) embryos. Overexpression of Hhex in endothelial cells down-regulates ESM-1. The results from transient cotransfection assay, electrophoretic-mobility shift assay, site-directed mutagenesis, and chromatin immunoprecipitation assay demonstrate that Hhex can directly bind to and repress ESM-1 via an evolutionarily conserved Hhex response element (HRE) 1. These findings indicate that ESM-1 is a direct target of Hhex and that Hhex functions as a transcriptional repressor of ESM-1. We speculate that Hhex-mediated repression of ESM-1 is critical for the normal function of the vascular endothelium and for tumor vasculogenesis.