We report that angiotensin-converting enzyme (ACE), a critical physiologic regulator of blood pressure, angiogenesis, and inflammation, is a novel marker for identifying hemangioblasts differentiating from human embryonic stem cells (hESC). We demonstrate that ACE+CD45-CD34+/- hemangioblasts are common yolk sac (YS)-like progenitors for not only endothelium but also both primitive and definitive human lymphohematopoietic cells. Thrombopoietin and basic fibroblast growth factor are identified as critical factors for the proliferation of human hemangioblasts. The developmental sequence of human embryoid body hematopoiesis is remarkably congruent to the timeline of normal human YS development, which occurs during weeks 2 to 6 of human gestation. Furthermore, ACE and the renin-angiotensin system (RAS) directly regulate hemangioblast expansion and differentiation via signaling through the angiotensin II receptors AGTR1 and AGTR2. ACE enzymatic activity is required for hemangioblast expansion, and differentiation toward either endothelium or multipotent hematopoietic progenitors is dramatically augmented after manipulation of angiotensin II signaling with either AGTR1- or AGTR2-specific inhibitors. The RAS can therefore be exploited to direct the hematopoietic or endothelial fate of hESC-derived hemangioblasts, thus providing novel opportunities for human tissue engineering. Moreover, the initial events of human hematoendotheliogenesis can be delineated in a manner previously impossible because of inaccessibility to early human embryonic tissues.