Vascular smooth muscle cells represent a major component of the cardiovascular system. In vitro studies have shown that FLK1+ cells derived from embryonic stem (ES) cells can differentiate into both endothelial and smooth muscle cells. These FLK1+ cells also contain a mesodermal precursor, the hemangioblast, able to produce endothelial, blood and smooth muscle cells. The generation of blood precursors from the hemangioblast was recently shown to occur through a transient cell population of specialised endothelium, a hemogenic endothelium. To date, the lineage relationship between this cell population and smooth muscle cell progenitors has not been investigated. In this study, we generated a reporter ES cell line in which expression of the fluorescent protein H2B-VENUS is driven by the α-smooth muscle actin (α-SMA) regulatory sequences. We demonstrated that this reporter cell line efficiently trace smooth muscle development during ES cell differentiation. Although some smooth muscle cells are associated with broad endothelial development, we established that smooth muscle cells are mostly generated independently from a specialised functional hemogenic endothelium. This study provides new and important insights into hematopoietic and vascular development, which may help in driving further progress towards the development of bioengineered vascular grafts for regenerative medicine.