Activin is a potent inducer of mesoderm in amphibian embryos. We previously reported that low concentrations of activin could induce the formation of blood cells from Xenopus explants (animal caps). Both hematopoietic and vascular endothelial cell lineages are believed to share a common precursor, termed hemangioblasts. In this study, we tried to induce differentiation of vascular endothelial cells in aggregates derived from Xenopus animal caps. Aggregates formed from cells that were co-treated with activin and angiopoietin-2 expressed the vascular endothelial markers, X-msr, Xtie2 and Xegfl7. However, none of these aggregates expressed the hematopoietic marker genes, globin alpha T3, alpha T5, alpha A or GATA-1. We used microarray analysis to compare the gene expression profiles of aggregates treated with activin alone or with activin and angiopoietin. The combination, but not activin alone, induced expression of vascular-related genes such as Xl-fli and VEGF. These results demonstrate that treatment of dissociated animal cap cells with activin and angiopoietin-2 can induce differentiation of endothelial cells, and provides a promising model system for the in vitro study of blood vessel induction in vertebrates.