The signals that direct pluripotent stem cell differentiation into lineage-specific cells remain largely unknown. Here, we investigated the roles of BMP on vascular progenitor development from human embryonic stem cells (hESCs). In a serum-free condition, hESCs sequentially differentiated into CD34+CD31-, CD34+CD31+, and then CD34-CD31+ cells during vascular cell development. CD34+CD31+ cells contained vascular progenitor population that gives rise to endothelial cells and smooth muscle cells. BMP4 promoted hESC differentiation into CD34+CD31+ cells at an early stage. In contrast, TGFbeta suppressed BMP4-induced CD34+CD31+ cell development, and promoted CD34+CD31- cells that failed to give rise to either endothelial or smooth muscle cells. The BMP-Smad inhibitor, dorsomorphin, inhibited phosphorylation of Smad1/5/8, and blocked hESC differentiation to CD34+CD31+ progenitor cells, suggesting that BMP Smad-dependent signaling is critical for CD34+CD31+ vascular progenitor development. Our findings provide new insight into how pluripotent hESCs differentiate into vascular cells.