The generation of hematopoietic stem cells (HSCs) during development is a complex process linked to morphogenic signals. Understanding this process is important for regenerative medicine applications that require in vitro production of HSC. In this study we investigated the effects of canonical Wnt/beta-catenin signaling during early embryonic differentiation and hematopoietic specification using an embryonic stem cell system. Our data clearly demonstrates that following early differentiation induction, canonical Wnt signaling induces a strong mesodermal program whilst maintaining a degree of stemness potential. This involved a complex interplay between beta-catenin/TCF/LEF/Brachyury/Nanog. beta-catenin mediated up-regulation of TCF/LEF resulted in enhanced brachyury levels, which in-turn lead to Nanog up-regulation. During differentiation, active canonical Wnt signaling also up-regulated key transcription factors and cell specific markers essential for hematopoietic specification, in particular genes involved in establishing primitive erythropoiesis. This led to a significant increase in primitive erythroid colony formation. similar to-catenin signaling also augmented early hematopoietic and multipotent progenitor (MPP) formation. Following culture in a MPP specific cytokine cocktail, activation of beta-catenin suppressed differentiation of the early hematopoietic progenitor population, with cells displaying a higher replating capacity and a propensity to form megakaryocytic erythroid progenitors. This bias towards erythroid lineage commitment was also observed when hematopoietic progenitors were directed to undergo myeloid colony formation. Overall this study underscores the importance of canonical Wnt/beta-catenin signaling in mesodermal specification, primitive erythropoiesis and early hematopietic progenitor formation during hematopoietic induction.