The embryonic role of endothelial cells and nascent vessels in promoting organogenesis, prior to vascular function, is unclear. We find that early endothelial cells in mouse embryos surround newly specified hepatic endoderm and delimit the mesenchymal domain into which the liver bud grows. In flk-1 mutant embryos, which lack endothelial cells, hepatic specification occurs, but liver morphogenesis fails prior to mesenchyme invasion. We developed an embryo tissue explant system that permits liver bud vasculogenesis and show that in the absence of endothelial cells, or when the latter are inhibited, there is a selective defect in hepatic outgrowth. We conclude that vasculogenic endothelial cells and nascent vessels are critical for the earliest stages of organogenesis, prior to blood vessel function.