The identity of the cells giving rise to the hematopoietic system in the mouse embryo are unknown. The results presented here strongly suggest that hematopoietic cells are derived from a nonhematopoietic cell population that has been previously thought to give rise to the germ cells. These cells are called primordial germ cells (PGCs) and can be recognized as large cells showing blebbing and pseudopodial extrusions on their surface. They are alkaline phosphatase (AP) positive and possess a stage-specific embryonic antigen (SSEA-1) on their surface. They represent a small pool of cells in the extraembryonic mesoderm at the base of the allantois in late day-6 embryos. Primordial germ cells from 7.5- and 8.5-day visceral yolk sac and embryo proper form AP+ and SSEA-1+ colonies within 5 days when grown on an embryonic fibroblast feeder cell layer in the presence of leukemia inhibitory factor (LIF), stem cell factor (SCF), and interleukin-3 (IL-3). Individual colonies taken from day-5 cultures can be shown to differentiate into erythroid lineage cells in secondary methyl cellulose culture and produce secondary and tertiary PGCs in the presence of LIF, SCF, and IL-3. Cells taken from the region of the allantois and primitive streak can form colonies on hydrophilic Teflon (DuPont, Wilmington, DE) foils precoated with collagen and fibronectin. The cells from these colonies were then shown to form cobblestone areas on irradiated adult bone marrow stromal layers, indicating that the most primitive in vitro hematopoietic stem cell, the cobblestone-area forming cell (CAFC), was present. PGC colonies were grown in methyl cellulose in the presence of LIF, SCF, and IL-3 for 5 days, and the colonies were removed and passaged 3 times on pretreated extracellular matrix hydrophilic Teflon foils. After each passage, the cells were assayed for their differentiation capacity and PGC content. After the last passage, the number of CAFCs was also determined. It was found that, under these conditions, the PGC population expanded more than 400- fold and also contained CAFCs. It is postulated that the PGC represents a totipotent stem cell population capable of producing a variety of different cell types including cells of the hematopoietic system.