It is well recognized from adult stem cell studies that the growth of transplanted bone marrow is generated from the hematopoietic (“blood-forming”) stem and progenitor cells provided by the donor bone marrow. Mature, differentiated cells that accompany the hematopoietic stem cells, disappear rapidly after transplantation as they lack the ability to self-renew. It is thus essential when designing clinical approaches that use tissues or cells derived from human embryonic stem cells (hESC), to specifically target the production of stem and progenitors that will survive, proliferate and differentiate normally after transplantation. We and others have shown that blood cells can be generated from hESC. However, it has become apparent more recently that the types of blood cells that hESC can produce under current conditions are more limited functionally than those found in bone marrow or cord blood. Over the past year of funding, we have studied this problem in the following ways. First, we have identified some of the key genetic differences in the way blood is formed from hESC that may be particularly important in the formation of the lymphoid cells of the immune system. Second, we have identified a very early stage of differentiation at which the pluripotent character of hESC is lost and blood forming potential is gained. We have called this primitive population “embryonic mesoderm progenitor” (EMP) cells as they have the potential to make many if not all the cells of the mesoderm germ layer. We have developed ways to isolate the EMP cells and have begun to study how genes regulate their production from hESC. Third, we have developed a way to express genes in hESC and hEMP to try and improve how these cells produce blood. During the next year of funding, we will continue to study the hEMP and other blood progenitors with the ultimate goal of learning how to improve production of the lymphoid immune system from hESC.