Current approaches to differentiate embryonic stem (ES) cells to hematopoietic precursors in vitro use either feeder cell, serum, conditioned culture medium or embryoid body, methods that cannot avoid undefined culture conditions, precluding analysis of the fate of individual cells. Here, we have developed a defined, serum-free and low cell-density differentiation program to generate endothelial and hematopoietic cells within 6 days from murine ES cells. Our novel approach identifies a set of factors that are necessary and sufficient to differentiate ES cells into definitive hematopoietic precursors, as documented by the time-lapse video microscopy of the stepwise differentiation processes from single progenitors. Moreover, this defined milieu revealed the essential role of bone morphogenetic protein 4 (BMP4) in determining the hematopoietic/endothelial fate and demonstrated that the hemogenic fate in mesoderm is determined as early as day 4 of our differentiation protocol. Our ability to directly convert ES cells to endothelial and hematopoietic precursors should have important utilities for studies of hematopoietic development and personalized medicine in the future.