The pacemaker tissues of the heart are a complex set of specialized cells that initiate the rhythmic heartbeat. The sinoatrial node (SAN) serves as the primary pacemaker, whereas the atrioventricular node can serve as a subsidiary pacemaker in cases of SAN failure or block. The elucidation of genetic networks regulating the development of these tissues is crucial for understanding the mechanisms underlying arrhythmias and for the design of targeted therapies. Here we report temporal and spatial self-organized formation of the pacemaker and contracting tissues in three-dimensional aggregate cultures of mouse embryonic stem cells termed embryoid bodies (EBs). Using genetic marker expression and electrophysiological analyses we demonstrate that in EBs the pacemaker potential originates from a localized population of cells and propagates into the adjacent contracting region forming a functional syncytium. When Shox2, a major determinant of the SAN genetic pathway, was ablated we observed substantial slowing of spontaneous contraction rates and an altered gene expression pattern including downregulation of HCN4, Cx45, Tbx2, Tbx3, and bone morphogenetic protein 4 (BMP4); and upregulation of Cx40, Cx43, Nkx2.5, and Tbx5. This phenotype could be rescued by adding BMP4 to Shox2 knockout EBs in culture from days 6 to 16 of differentiation. When wild-type EBs were treated with Noggin, a potent BMP4 inhibitor, we observed a phenotype consistent with the Shox2 knockout EB. Altogether, we have generated a reproducible in vitro model that will be an invaluable tool for studying the molecular pathways regulating the development of cardiac pacemaker tissues.