Human embryonic stem cell (hESC) lines provide not only an unique system for studying human embryonic development, but also have enormous potential as a source of therapeutic tissues, including those of vascular and hematopoietic lineages. However, it is difficult to generate large-scale of relatively pure population of specific lineage cells derived from hESCs. Here, we describe a 2-dimensional (2-D) culture system for hESC differentiation to generate hematopoietic and endothelial cells in vitro without embryoid body (EB) formation (3-D). To initial differentiation, hESCs (H1 and H9 cell lines) were placed in serum-containing media for 9–10 days without supplement of additional growth factors. Gene expression analysis of 2-D differentiation indicated that Oct-4, a pluripotent gene, was decreased, while genes for GATA-2 and CD31, were increased, suggesting that differentiated hESCs contain hematopoietic and endothelial progenitors. Comparing with 3-D EB formation, 2-D differentiation was able to generate robust differentiated cells (5 to 10-fold higher). To generate a reasonable pure population of hematopoietic and endothelial precursors, CD34+ cells prior to hematopoietic commitment were isolated from 2-D differentiation by immuno-magnetic beads and cultured in the presence of hematopoietic growth factors and endothelial growth factors. After 7–10 days culture of CD34+ cells, both suspension and adherent cells emerged. The number of suspension and adherent cells was dependent on the presence of hematopoietic growth factors or/and endothelial growth factors. The suspension cells expressed hematopoietic marker, CD45, and gave rise to multi-lineage hematopoietic colonies on methylcellulose cultures. The adherent cells expressed endothelial markers, such as CD31 and Ve-cadherin, and took up Dill-labeled ac-LDL. The adherent cells rapidly formed capillary-like structures on Matrigel cultures, while the suspension cells would not. While the adherent cells were implanted into mice, they formed functional blood vessels in vivo. Our culture system paves the road for further large-scale manufacture of hematopoietic and endothelial cells derived from human ES cells. Our studies demonstrated also that CD34+ cells derived from human ES cells contain hematopoietic and endothelial progenitors.