In the developing mouse, vascular endothelial cell (EC) and hematopoietic cell (HPC) lineages are two initial cell lineages that diverge from mesodermal cells, which have been roughly subdivided into three subtypes according to their geographical location: the organizer, embryonic mesoderm in the primitive streak, and extraembryonic mesoderm during gastrulation. Although the initial progenitors that become the two lineages appear in both vascular endothelial growth factor receptor 2(+) (VEGFR2(+)) lateral and extraembryonic mesoderm, little is known about the underlying molecular events that regulate the derivation of ECs and HPCs. Here, we describe an experimental system consisting of two types of embryonic stem cell lines capable of distinguishing between organizer and the middle section of the primitive streak region. Using this system, we were able to establish a defined culture condition that can separately induce distinct types of mesoderm. Although we were able to differentiate ECs from all mesoderm subsets, however, the potential of HPCs was restricted to the VEGFR2(+) cells derived from primitive streak-type mesodermal cells. We also show that the culture condition for the progenitors of primitive erythrocytes is separated from that for the progenitors of definitive erythrocytes. These results suggest the dominant role of extrinsic regulation during diversification of mesoderm.