The transcription factors, GATA-1, -2 and -3 play essential roles in the differentiation of haematopoietic cells. To study the process of blood formation during vertebrate development we have used the expression of these GATA factors to locate haematopoietic cells in Xenopus embryos and to act as sensors for the effects of all-trans retinoic acid (RA), a signalling molecule which influences both anteroposterior patterning and haematopoietic differentiation. GATA factor expression was detected in the leading edge of the gastrulating mesoderm, in the ventral blood island (VBI) and dorsolateral plate (DLP) mesoderms and in a population of cells between the VBI and DLP. The VBI contributes to both embryonic and adult blood, whereas the DLP contains precursors of adult blood only, which have not been identified previously with molecular markers. The possibility that the GATA-2-expressing cells between the VBI and DLP were haematopoietic progenitors migrating from the VBI to the DLP was ruled out by transplantation analysis. Differential effects of RA on the expression of GATA-1 and GATA-2 suggest that RA has a direct action on haematopoietic differentiation, rather than on the formation of haematopoietic mesoderm.