Understanding how blood cells are generated is important from a biological perspective but also has potential implications in the treatment of blood diseases. Such knowledge could potentially lead to defining new conditions to amplify hematopoietic stem cells (HSCs) or could translate into new methods to produce HSCs, or other types of blood cells, from human embryonic stem cells or induced pluripotent stem cells. Additionally, as most key transcription factors regulating early hematopoietic development have also been implicated in various types of leukemia, understanding their function during normal development could result in a better comprehension of their roles during abnormal hematopoiesis in leukemia. In this review, we discuss our current understanding of the molecular and cellular mechanisms of blood development from the earliest hematopoietic precursor, the hemangioblast, a precursor for both endothelial and hematopoietic cell lineages.