During mammalian development, definitive hematopoietic stem cells (HSCs) arise in the aorta-gonad-mesonephros (AGM) region and colonize the fetal liver (FL) before hematopoiesis occurs in the bone marrow. The FL is a unique hematopoietic organ where both HSCs and mature blood cells are actively generated along with functional maturation of hepatic cells as a metabolic organ. To characterize HSCs and FL microenvironments during development, this study establishes a coculture system composed of AGM-originated HSCs and FL nonhematopoietic cells. The results demonstrate that FL cells support significant expansion of lineage-committed hematopoietic cells as well as immature progenitors. More important, long-term repopulating activity was amplified from AGM-originated HSCs in this coculture system. Engraftment of HSCs to the bone marrow was strongly enhanced by coculture. In addition, AGM HSCs produced significantly more hematopoietic cells than E14.5 and E18.5 FL HSCs in vitro. These results suggest that the FL microenvironment not only stimulates expansion of the hematopoietic system, but also possibly modifies the characteristics of AGM HSCs. Thus, this coculture system recapitulates the developmental process of HSCs and the FL microenvironment and provides a novel means to study the development of hematopoiesis.