Relatively little is known about the modulators of the vascular endothelial growth factor A (VEGF-A)/Flk1 signaling cascade. To functionally characterize this pathway, VEGF-A stimulation of endothelial cells was performed. VEGF-A-mediated Flk1 activation resulted in increased translocation of the endogenous Fps/Fes cytoplasmic tyrosine kinase to the plasma membrane and increased tyrosine phosphorylation, suggesting a role for Fps/Fes in VEGF-A/Flk1 signaling events. Addition of a myristoylation consensus sequence to Fps/Fes resulted in VEGF-A-independent membrane localization of Fps/Fes in endothelial cells. Expression of the activated Fps/Fes protein in Flk1-deficient embryonic stem (ES) cells rescued their contribution to the developing vascular endothelium in vivo by using ES cell-derived chimeras. Activated Fps/Fes contributed to this rescue event by restoring the migratory potential to Flk1 null progenitors, which is required for movement of hemangioblasts from the primitive streak region into the yolk sac proper. Activated Fps/Fes in the presence of Flk1 increased the number of hemangioblast colonies in vitro and increased the number of mesodermal progenitors in vivo. These results suggest that Fps/Fes may act synergistically with Flk1 to modulate hemangioblast differentiation into the endothelium. We have also demonstrated that activated Fps/Fes causes hemangioma formation in vivo, independently of Flk1, as a result of increasing vascular progenitor density.