During heart development, a subpopulation of cells in the heart field maintains cardiac potential over several days of development and forms the myocardium and smooth muscle of the arterial pole. Using clonal and explant culture experiments, we show that these cells are a stem cell population that can differentiate into myocardium, smooth muscle and endothelial cells. The multipotent stem cells proliferate or differentiate into different cardiovascular cell fates through activation or inhibition of FGF and BMP signaling pathways. BMP promoted myocardial differentiation but not proliferation. FGF signaling promoted proliferation and induced smooth muscle differentiation, but inhibited myocardial differentiation. Blocking the Ras/Erk intracellular pathway promoted myocardial differentiation, while the PLCγ and PI3K pathways regulated proliferation. In vivo, inhibition of both pathways resulted in predictable arterial pole defects. These studies suggest that myocardial differentiation of arterial pole progenitors requires BMP signaling combined with downregulation of the FGF/Ras/Erk pathway. The FGF pathway maintains the pool of proliferating stem cells and later promotes smooth muscle differentiation.