Hematopoietic stem cells pass sequentially through a series of developmental decision points regulating self-renewal and lineage-specific differentiation. In normal hematopoiesis proliferation is tightly linked to differentiation in ways that are poorly understood. The Notch gene family has been shown to be evolutionarily conserved and to play an important role in determining cell fate, survival, and proliferation in multiple organisms. Numerous in vitro and in vivo studies strongly support a role for Notch signaling in the regulation of stem cell signaling and hematopoiesis. To define the function of Notch in the earliest stages of hematopoiesis, a Tetracycline-inducible system regulating expression of a ligand-independent, constitutively active form of Notch1 was introduced into murine E14Tg2a embryonic stem cells. (Era and Witte, PNAS, 97;1737–1742,2000). During co-culture, OP9 stromal cells induce the embryonic stem cells to differentiate first to hemangioblasts and subsequently to hematopoietic cells. Our studies indicate that activation of Notch signaling in flk+ hemangioblasts dramatically reduces their proliferative capacity without inducing apoptosis. Furthermore, Notch1 activation significantly reduces the levels of hematopoietic stem cell markers CD34, c-Kit and the myeloid marker CD11b. These reversible effects suggest that Notch signaling maintains the hemangioblasts in an immature state and blocks hematopoietic differentiation. When activated Notch is induced in committed hematopoietic progenitors, a shift towards definitive erythroid differentiation and decreased myeloid differentiation is observed. Microarray analysis of day8 hematopoietic progenitors following Notch activation in hemangioblasts indicates upregulation of known downstream targets of Notch signaling. Based on these results, we propose that Notch signaling plays a critical role in the earliest events regulating hematopoiesis.