Endothelial cells differentiate from mesoderm-derived precursors to initiate the earliest events in vascular development. Although the signaling events that regulate the successive steps of vascular development are known in some detail, the transcriptional processes that regulate the first steps in vasculogenesis are not well defined. We have studied the regulatory mechanisms of flk1 expression as a model to understand the upstream events in endothelial cell differentiation, since flk1 is the earliest marker of endothelial precursors. Using a variety of biochemical approaches, we identified a cis-acting element in the first intron of the flk1 gene that is required for endothelium-dependent expression in transgenic reporter gene assays. Using the yeast one-hybrid system, we identified HoxB5 as the transcription factor that binds this cis-acting element, the HoxB5-binding element (HBE). HoxB5 mRNA colocalized with flk1 expression in differentiating embryoid bodies, and HoxB5 potently transactivated the flk1 promoter in an HBE-dependent fashion in transient-transfection assays. Overexpression of HoxB5 led to expansion of flk1⁺ angioblasts in differentiating embryoid bodies and increased the number of PECAM (platelet-endothelial cell adhesion molecule)-positive primitive blood vessels. HoxB5 is necessary and sufficient to activate the cell-intrinsic events that regulate the differentiation of angioblasts and mature endothelial cells from their mesoderm-derived precursors.