Despite the need for alternative sources of human hematopoietic stem cells (HSCs), the functional capacity of hematopoietic cells generated from human embryonic stem cells (hESCs) has yet to be evaluated and compared with adult sources. Here, we report that somatic and hESC-derived hematopoietic cells have similar phenotype and in vitro clonogenic progenitor activity. However, in contrast with somatic cells, hESC-derived hematopoietic cells failed to reconstitute intravenously transplanted recipient mice because of cellular aggregation causing fatal emboli formation. Direct femoral injection allowed recipient survival and resulted in multilineage hematopoietic repopulation, providing direct evidence of HSC function. However, hESC-derived HSCs had limited proliferative and migratory capacity compared with somatic HSCs that correlated with a distinct gene expression pattern of hESC-derived hematopoietic cells that included homeobox (HOX) A and B gene clusters. Ectopic expression of HOXB4 had no effect on repopulating capacity of hESC-derived cells. We suggest that limitations in the ability of hESC-derived HSCs to activate a molecular program similar to somatic HSCs may contribute to their atypical in vivo behavior. Our study demonstrates that HSCs can be derived from hESCs and provides an in vivo system and molecular foundation to evaluate strategies for the generation of clinically transplantable HSC from hESC lines.