Adult murine bone marrow hematopoietic stem cells (HSCs) can be purified by sorting Hoechst 33342-extruding side population (SP) cells. Herein we investigated whether SP cells reside within embryonic tissues and exhibit hematopoietic progenitor activity. We isolated yolk sac (YS) and embryonic tissues 7.5 to 11.5 days after coitus (dpc), resolved an SP in each, and demonstrated that these SP cells exhibit distinct phenotypic and functional characteristics throughout development. YS and embryonic SP isolated 8.0 dpc expressed vascular endothelial-cadherin (VE-cadherin) and vascular endothelial receptor 2 (Flk-1), markers not expressed by bone marrow SP but expressed by endothelial cells and progenitors. SP at this stage did not express CD45 or produce hematopoietic colonies in vitro. In contrast, SP isolated 9.5 to 11.5 dpc contained a significantly higher proportion of cells expressing cKit and CD45, markers highly expressed by bone marrow SP. Furthermore, YS SP isolated 9.5 to 11.5 dpc demonstrated 40- to 90-fold enrichment for hematopoietic progenitor activity over unfractionated tissue. Our data indicate that YS and embryonic SP cells detected prior to the onset of circulation express the highest levels of endothelial markers and do not generate blood cells in vitro; however, as development progresses, they acquire hematopoietic potential and phenotypic characteristics similar to those of bone marrow SP.