Two regions of the vertebrate embryo, the blood islands and the dorsal lateral plate (DLP), participate in early hematopoietic development. In Xenopus, primitive erythrocytes are derived solely from the ventral blood islands (VBI), while definitive hematopoietic cells such as lymphocytes are derived from both VBI and DLP. We have utilized a transplantation technique to demonstrate in vivo that all hematopoietic cells (embryonic, fetal, or adult) originate from ventral mesoderm. Reciprocal grafts between VBI and DLP demonstrated that both regions are bipotential with respect to primitive and definitive hematopoiesis. Commitment of the VBI to primitive erythropoiesis and restriction of the DLP to definitive hematopoiesis occurs during neurula stages. Thus, hematopoietic development involves the induction of the blood program on the ventral axis of the embryo followed by environmentally regulated specification to the primitive or definitive lineages.