FLK1-expressing (FLK1(+)) mesoderm generates blood and vessels. Here, we show that combined BMP, Notch, and Wnt signaling is necessary for efficient FLK1(+) mesoderm formation from embryonic stem cells (ESCs). Inhibition of BMP, Notch, and Wnt signaling pathways greatly decreased the generation of FLK1(+) mesoderm and expression of the Ets transcription factor Er71. Enforced expression of ER71 in ESCs resulted in a robust induction of FLK1(+) mesoderm; rescued the generation of FLK1(+) mesoderm when blocked by BMP, Notch, and Wnt inhibition; and enhanced hematopoietic and endothelial cell generation. Er71-deficient mice had greatly reduced FLK1 expression, died early in gestation, and displayed severe blood and vessel defects that are highly reminiscent of the Flk1 null mouse phenotype. Collectively, we provide compelling evidence that ER71 functions downstream of BMP, Notch, and Wnt signals and regulates FLK1(+) mesoderm, blood, and vessel development.