Rationale: Fetal growth and survival depend critically on proper development and integrity of the vascular system. Fli1 (Friend leukemia integration 1), a member of the Ets family of transcription factors, plays critical roles in vascular morphogenesis and homeostasis at mid-gestation, the developmental stage at which expression of its upstream regulator, Etv2, ceases. However, molecular mechanisms of Fli1 action in vascular morphogenesis remain incompletely understood. Objective: To dissect molecular mechanisms of vascular morphogenesis governed by Fli1. Methods and Results: Utilizing Fli1 promoter-driven lineage-specific LacZ expression, Fli1 loss-of-function strategies, and a series of molecular techniques, we demonstrate that Fli1 expression in multipotent myogenic progenitor cells (MPCs) occurs independent of Etv2, and loss of Fli1 expression results in a significant increase in LacZ ⁺ cells in mesoderm within somites and limb buds, leading to reciprocal regulation of the expression of several key endothelial and myogenic genes and vascular abnormalities. Conversely, embryos harboring conditional Fli1 gain-of-function in MPCs manifested aberrant vasculogenesis with lack of myogenesis. Mechanistically, elevated Fli1 activity in myoblasts and in adult MPCs (also called satellite cells) of X-linked muscular dystrophic mdx mice markedly induced endothelial, but attenuated myogenic, gene expression and differentiation. Importantly, ectopic expression of Myf5 or MyoD, two key myogenic regulators, in Fli1-expressing myoblasts restored their differentiation potential, indicating that levels of Fli1 and myogenic regulators in MPCs inversely regulate their endothelial versus myogenic potential. Conclusions: Fli1 governs vascular morphogenesis by regulating endothelial potential by inversely regulating endothelial versus myogenic programs in MPCs. Our data uncover an important and previously unrecognized mechanism of vascular morphogenesis governed by Fli1 and highlight the physiological significance of the fine tuning of Fli1 activity in multipotent progenitors for proper vascular and muscle morphogenesis during development and disease.