Genetic control of hematopoietic stem and progenitor cell (HSPC) function is increasingly understood; however, less is known about the interactions specifying the embryonic hematopoietic niche. Here, we report that 17beta-estradiol (E2) influences production of runx1+ HSPCs in the AGM region by antagonizing VEGF signaling and subsequent assignment of hemogenic endothelial (HE) identity. Exposure to exogenous E2 during vascular niche development significantly disrupted flk1+ vessel maturation, ephrinB2+ arterial identity, and specification of scl+ HE by decreasing expression of VEGFAa and downstream arterial Notch-pathway components; heat shock induction of VEGFAa/Notch rescued E2-mediated hematovascular defects. Conversely, repression of endogenous E2 activity increased somitic VEGF expression and vascular target regulation, shifting assignment of arterial/venous fate and HE localization; blocking E2 signaling allowed venous production of scl+/runx1+ cells, independent of arterial identity acquisition. Together, these data suggest that yolk-derived E2 sets the ventral boundary of hemogenic vascular niche specification by antagonizing the dorsal-ventral regulatory limits of VEGF.