Differentiation of embryonic stem (ES) cells in vitro yields abundant hematopoietic progenitors, but achieving stable hematopoietic engraftment of irradiated mice has proven difficult, begging the question of whether ES cells give rise to hematopoietic stem cells in vitro, and limiting the application of ES cells as experimental and therapeutic models. We have employed a number of hematopoietic regulatory genes to probe the nature and developmental potential of ES-derived blood precursors. The chronic myeloid leukemia-associated BCR/ABL oncoprotein transforms a novel class of ES-derived embryonic hematopoietic stem cell that represents a common progenitor of primitive erythropoiesis and definitive lymphoid-myeloid blood development. Expression of the homeobox gene HoxB4 generated normal, non-leukemic hematopoietic progenitors that enabled long-term, multilineage hematopoietic engraftment in primary and secondary mouse recipients. We have used these repopulating hematopoietic stem cells to model therapeutic transplantation from ES cells. We treated an immunodeficient Rag2(-/-) mouse by therapeutic cloning, that is, isogenic ES cell generation by somatic cell nuclear transfer, gene correction, and cell replacement therapy. Comparable approaches with human ES cells are being developed to lay the foundation for cellular therapies in patients with a variety of bone marrow diseases.