Vasculogenesis involves the differentiation of vascular endothelial progenitors de novo from undifferentiated mesoderm, their migration and coalescence to form the major embryonic vessels and the acquisition of arterial or venous identity. Vascular Endothelial Growth Factor (Vegf) signaling has been implicated in regulating arteriovenous specification and overall vascular endothelial differentiation during embryonic vasculogenesis. However, it is not known how Vegf signaling results in different functional outcomes. Here we examined the role and mechanisms of Vegf signaling during vascular endothelial differentiation and arteriovenous specification in zebrafish embryos. Chemical inhibition of Vegf receptor (VegfR) signaling resulted in a loss of arterial specification and downregulation of overall vascular endothelial marker expression. Conversely, Vegfaa overexpression resulted in the expansion of arterial markers and increase in the overall vascular endothelial differentiation. Our results further suggest that Vegf signaling affects arterial differentiation by modulating the expression of the ETS transcription factor Etv2/Etsrp. Etv2 expression was downregulated in VegfR inhibited embryos, while endothelial specific Etv2 overexpression was sufficient to rescue arterial marker expression in Vegf inhibited embryos. vegfaa genetic mutants, similar to VegfR inhibited embryos, displayed absent arterial differentiation and reduced numbers of vascular endothelial cells. These results argue that Vegf signaling plays two distinct roles during vasculogenesis, by promoting arterial specification and proliferation of vascular endothelial cells, and Vegf promotes arterial specification by upregulating Etv2 expression.