Hypoxia inducible factors (HIFs) regulate adaptive responses to changes in oxygen (O₂) tension during embryogenesis, tissue ischemia, and tumorigenesis. Because HIF-deficient embryos exhibit a number of developmental defects, the precise role of HIF in early vascular morphogenesis has been uncertain. Using para-aortic splanchnopleural (P-Sp) explant cultures, we show that deletion of the HIF-β subunit (ARNT) results in defective hematopoiesis and the inhibition of both vasculogenesis and angiogenesis. These defects are rescued upon the addition of wild-type Sca-1⁺ hematopoietic cells or recombinant VEGF. Arnt^−/− embryos exhibit reduced levels of VEGF protein and increased numbers of apoptotic hematopoietic cells. These results suggest that HIF coordinates early endothelial cell emergence and vessel development by promoting hematopoietic cell survival and paracrine growth factor production.