Hematopoietic stem cells (HSCs) are first detected in the floor of the embryonic dorsal aorta (DA), and we investigate the signals that induce the HSC program there. We show that while continued Hedgehog (Hh) signaling from the overlying midline structures maintains the arterial program characteristic of the DA roof, a ventral Bmp4 signal induces the blood stem cell program in the DA floor. This patterning of the DA by Hh and Bmp is the mirror image of that in the neural tube, with Hh favoring dorsal rather than ventral cell types, and Bmp favoring ventral rather than dorsal. With the majority of current data supporting a model whereby HSCs derive from arterial endothelium, our data identify the signal driving this conversion. These findings are important for the study of the production of HSCs from embryonic stem cells and establish a paradigm for the development of adult stem cells.