Hematopoietic stem cells (HSCs) emerge from and expand in the mouse placenta at mid-gestation. To determine their compartment of origin and define extrinsic signals governing their commitment to this lineage, we identified hematopoietic cell (HC) clusters in mouse placenta, defined as cells expressing the embryonic HSC markers CD31, CD34 and Kit, by immunohistochemistry. HC clusters were first observed in the placenta at 9.5 days post coitum (dpc). To determine their origin, we tagged the allantoic region with CM-DiI at 8.25 dpc, prior to placenta formation, and cultured embryos in a whole embryo culture (WEC) system. CM-DiI-positive HC clusters were observed 42 hours later. To determine how clusters are extrinsically regulated, we isolated niche cells using laser capture micro-dissection and assayed them for expression of genes encoding hematopoietic cytokines. Among a panel of candidates assayed, only stem cell factor (SCF) was expressed in niche cells. To define niche cells, endothelial and mesenchymal cells were sorted by flow cytometry from dissociated placenta and hematopoietic cytokine gene expression was investigated. The endothelial cell compartment predominantly expressed SCF mRNA and protein. To determine whether SCF/Kit signaling regulates placental HC cluster proliferation, we injected anti-Kit neutralizing antibody into 10.25 dpc embryos and assayed cultured embryos for expression of hematopoietic transcription factors. Runx1, Myb and Gata2 were downregulated in the placental HC cluster fraction relative to controls. These observations demonstrate that placental HC clusters originate from the allantois and are regulated by endothelial niche cells through SCF/Kit signaling.