Endothelial and hematopoietic cells appear synchronously on the extra-embryonic membranes of amniotes in structures known as blood islands. This observation has led to the suggestion that these two ventral lineages share a common progenitor. Recently, we have shown in the zebrafish, Danio rerio, that a single cell in the ventral marginal zone of the early blastula can give rise to both endothelial and blood cells as well as to other mesodermal cells (Stainier, D. Y. R., Lee, R. K. and Fishman, M. C. (1993). Development 119, 31–40; Lee, R. K. K., Stainier, D. Y. R., Weinstein, B. M. and Fishman, M. C. (1994). Development 120, 3361–3366). Here we describe a zebrafish mutation, cloche, that affects both the endothelial and hematopoietic lineages at a very early stage. The endocardium, the endothelial lining of the heart, is missing in mutant embryos. This deletion is selective as evidenced by the presence of other endothelial cells, for example those lining the main vessels of the trunk. Early cardiac morphogenesis proceeds normally even in the absence of the endocardium. The myocardial cells form a tube that is demarcated into chambers, beats rhythmically, but exhibits a reduced contractility. This functional deficit is likely due to the absence of the endocardial cells, although it may be a direct effect of the mutation on the myocardial cells. Cell transplantation studies reveal that the endothelial defect, i.e. the endocardial deletion, is a cell-autonomous lesion, consistent with the possibility that cloche is part of a signal transduction pathway. In addition, the number of blood cells is greatly reduced in cloche mutants and the hematopoietic tissues show no expression of GATA-1 or GATA-2, two key hematopoietic transcription factors that are first expressed during early embryogenesis. These results show that cloche is involved in the genesis and early diversification of the endothelial and blood lineages, possibly by affecting a common progenitor cell population.