The formation of endocardial endothelium in quail embryos was investigated using in vivo and in vitro systems. Based on the expression of an quail endothelial marker, QH-1, the initial emergence of endothelial precursor cells in the embryo occurs at stage 7+ (two somites) in the posterior parts of the bilateral heart forming regions. Cells that expressed the QH-1 antigen were mesenchymal and positioned between the mesodermal epithelium of the heart region and the endoderm. By confocal microscopy, an asymmetrical distribution of QH-1 positive cells was observed between the two heart regions: specifically between 7+ and 8-, more precursor cells were seen in the right region than the left. Endothelial precursor cells did not appear outside of the heart forming regions until stage 8- (three somites). Free, mesenchymal-like endothelial precursor cells intrinsic to the heart regions also expressed two extracellular antigens, JB3, a fibrillin-like protein, and cytotactin, both associated with segments of the primary heart tube where endothelial cells "re-transform" back to a mesenchymal phenotype during cardiac cushion tissue formation. Between stages 8 and 9 (four to seven somites), (1) QH-1 positive cells within the heart forming region established vascular-like connections with QH-1 positive cells located outside of the heart region, as initially shown by Coffin and Poole (1988), (2) after fusion of the heart regions, a plexus of QH-1 positive cells was formed ventral to the foregut, and (3) the definitive endocardial lining of the primary heart tube formed directly from the ventral plexus of endothelial precursor cells. Because the QH-1 positive, endothelial precursor cells of each heart forming region were always in close association with anterior endoderm, we sought to determine if the endoderm mediated the formation of precursor cells committed to a cardiac endothelial lineage as reflected by their expression of QH-1, JB3 antigen, and cytotactin. To test this hypothesis, precardiac mesodermal explants were isolated from stage 5 heart forming regions prior to their expressing of either endocardial or myocardial markers and cultured on the surface of collagen gets in the presence or absence of endoderm. In the absence of endoderm, precardiac mesoderm of each stage 5 explant remained epithelial, formed contractile tissue, but did not exhibit any QH-1 positive cells or mesenchymal cells. Conversely, when cocultured with endoderm or endoderm conditioned medium, in addition to the formation of contractile tissue, the explant formed mesenchymal cells. The latter invaded the gel lattice and, as in vivo, expressed QH-1 antigen, JB3 antigen, and cytotactin. These findings suggest that endoderm induces mesoderm of the heart fields to undergo an epithelial to mesenchyme transformation that results in the segregation of myocardial and endocardial precursor cells.