In developing limb skin, peripheral nerves provide a spatial template that controls the branching pattern and differentiation of arteries. Our previous studies indicate that nerve-derived VEGF-A is required for arterial differentiation but not for nerve-vessel alignment. In this study, we demonstrate that nerve-vessel alignment depends on the activity of Cxcl12-Cxcr4 chemokine signaling. Genetic inactivation of Cxcl12-Cxcr4 signaling perturbs nerve-vessel alignment and abolishes arteriogenesis. Further in vitro assays allow us to uncouple nerve-vessel alignment and arteriogenesis, revealing that nerve-derived Cxcl12 stimulates endothelial cell migration, whereas nerve-derived VEGF-A is responsible for arterial differentiation. These findings suggest a coordinated sequential action in which nerve Cxcl12 functions over a distance to recruit vessels to align with nerves, and subsequent arterial differentiation presumably requires a local action of nerve VEGF-A in the nerve-associated vessels.