The genes controlling self-renewal and differentiation in the hematopoietic system are largely unknown. The LIM-homeobox genes are known to be important for asymmetric cell divisions and differentiation of specific cell types and organs. One member of this family, LH2, is expressed in fetal liver at the time of active hematopoiesis. Therefore, we have assessed the function of LH2 during the formation and initial expansion of the hematopoietic system by differentiating LH2-transduced embryonic stem (ES) cells in vitro. This procedure generated multipotent hematopoietic precursor cell (HPC) lines that required Steel factor for growth. HPC lines have been maintained in an undifferentiated state in culture for> 7 months. Other growth factors tested efficiently induce terminal differentiation of HPCs into various mature myeloid lineages. Steel factor is also required and acts synergistically with the other growth factors to generate multilineage colonies from the HPCs. These HPC lines express transcription factors that are consistent with an immature progenitor, and the pattern of cell surface marker expression is similar to that of early fetal multipotent hematopoietic progenitors. Collectively, these data suggest that the HPC lines represent an early fetal multipotent hematopoietic progenitor, and suggest a role for LH2 in the control of cell fate decision and/or proliferation in the hematopoietic system.