During embryogenesis, a pool of pluripotential, self-renewing hematopoietic stem cells is specified from undifferentiated ventral mesoderm. These cells proliferate and differentiate to yield all the peripheral blood lineages. Although the mechanisms involved in the commitment and differentiation of multipotential progenitors have been well documented, little focus has been directed to the molecular events underlying the formation of hematopoietic stem cells. In this review we discuss the recent advances made in defining a bone morphogenetic protein-responsive signal cascade that regulates the earliest phase of blood formation during embryogenesis.