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The limited availability of human vascular endothelial cells (ECs) hampers research into EC function whilst the lack of precisely defined culture conditions for this cell type presents problems for addressing basic questions surrounding EC physiology. We aimed to generate endothelial progenitors from human pluripotent stem cells to facilitate the study of human EC physiology, using a defined serum-free protocol. Human embryonic stem cells (hESC-ECs) differentiated under serum-free conditions generated CD34(+)KDR(+) endothelial progenitor cells after 6days that could be further expanded in the presence of vascular endothelial growth factor (VEGF). The resultant EC population expressed CD31 and TIE2/TEK, took up acetylated low-density lipoprotein (LDL) and up-regulated expression of ICAM-1, PAI-1 and ET-1 following treatment with TNFα. Immunofluorescence studies indicated that a key mediator of vascular tone, endothelial nitric oxide synthase (eNOS), was localised to a perinuclear compartment of hESC-ECs, in contrast with the pan-cellular distribution of this enzyme within human umbilical vein ECs (HUVECs). Further investigation revealed that that the serum-associated lipids, lysophosphatidic acid (LPA) and platelet activating factor (PAF), were the key molecules that affected eNOS localisation in hESC-ECs cultures. These studies illustrate the feasibility of EC generation from hESCs and the utility of these cells for investigating environmental cues that impact on EC phenotype. We have demonstrated a hitherto unrecognized role for LPA and PAF in the regulation of eNOS subcellular localization.