Pluripotent stem cells (PSCs) may provide a potential source of blood forming stem cells for transplantation; however, unknown molecular barriers prevent the function of these cells. Using two-step differentiation, human embryonic stem cells (hESCs) differentiated in culture into multipotent blood-forming cells that looked like blood stem cells found during human development, but exhibited poor functionality. Gene expression analysis of culture-derived blood forming cells revealed that, despite their molecular resemblance to real blood stem cells, HOXA genes remained suppressed. Depletion of individual HOXA genes disrupted blood stem cell function and caused changes in gene expression that resembled those derived in culture. Increasing the level of HOXA genes in culture prolonged the maintenance of blood forming cells but was insufficient to confer full function. Stimulation of unique developmental signalling pathway during the development of blood forming cells from blood vessel wall induced the HOXA genes, and maintained blood forming cells longer in culture. Thus, HOXA gene marks the establishment of blood stem cell fate and controls their identity and function.