Arteriovenous malformations (AVMs) are fragile direct connections between arteries and veins that arise during times of active angiogenesis. To understand the etiology of AVMs and the role of blood flow in their development, we analyzed AVM development in zebrafish embryos harboring a mutation in activin receptor-like kinase I (alk1), which encodes a TGFβ family type I receptor implicated in the human vascular disorder hereditary hemorrhagic telangiectasia type 2 (HHT2). Our analyses demonstrate that increases in arterial caliber, which stem in part from increased cell number and in part from decreased cell density, precede AVM development, and that AVMs represent enlargement and stabilization of normally transient arteriovenous connections. Whereas initial increases in endothelial cell number are independent of blood flow, later increases, as well as AVMs, are dependent on flow. Furthermore, we demonstrate that alk1 expression requires blood flow, and despite normal levels of shear stress, some flow-responsive genes are dysregulated in alk1 mutant arterial endothelial cells. Taken together, our results suggest that Alk1 plays a role in transducing hemodynamic forces into a biochemical signal required to limit nascent vessel caliber, and support a novel two-step model for HHT-associated AVM development in which pathological arterial enlargement and consequent altered blood flow precipitate a flow-dependent adaptive response involving retention of normally transient arteriovenous connections, thereby generating AVMs.