Current induction schemes directing hematopoietic differentiation of human embryonic stem cells (hESCs) are not well defined to mimic the sequential stages of hematopoietic development in vivo. Here, we report a 3-stage method to direct differentiation of hESCs toward hematopoietic progenitors in chemically defined mediums. In the first 2 stages, we efficiently generated T-positive primitive streak/mesendoderm cells and kinase domain receptor-positive (KDR(+)) platelet-derived growth factor receptor α-negative (PDGFRα(-)) hemato-vascular precursors sequentially. In the third stage, we found that cells in a spontaneous differentiation condition mainly formed erythroid colonies. Addition of all-trans retinoic acid (RA) greatly enhanced generation of hematopoietic progenitors in this stage while suppressing erythroid development. The RA-treated cells highly expressed definitive hematopoietic genes, formed large numbers of multilineage and myeloid colonies, and gave rise to greater than 45% CD45(+) hematopoietic cells. When hematopoietic progenitors were selected with CD34 and C-Kit, greater than 95% CD45(+) hematopoietic cells could be generated. In addition, we found that endogenous RA signaling at the second stage was required for vascular endothelial growth factor/basic fibroblast growth factor-induced hemato-vascular specification, whereas exogenously applied RA efficiently induced KDR(-)PDGFRα(+) paraxial mesoderm cells. Our study suggests that RA signaling plays diverse roles in human mesoderm and hematopoietic development.