Our understanding of how mesodermal tissue is formed, has been limited by the absence of specific and reliable markers of early mesoderm commitment. We report that mesoderm commitment from human embryonic stem cells (hESC) is initiated by Epithelial to Mesenchymal transition (EMT) as shown by gene expression profiling and by reciprocal changes in expression of the cell surface proteins, EpCAM/CD326 and NCAM/CD56. Molecular and functional assays reveal that CD326negCD56+ cells, generated from hESC in the presence of activin A, BMP4, VEGF and FGF2, represent a novel, multi-potent mesoderm-committed progenitor population. CD326negCD56+ progenitors are unique in their ability to generate all mesodermal lineages including hematopoietic, endothelial, mesenchymal (bone, cartilage, fat, fibroblast), smooth muscle and cardiomyocytes, while lacking the pluripotency of hESC. CD326negCD56+ cells are the precursors of previously reported, more lineage-restricted mesodermal progenitors. These findings present a novel approach to study how germ layer specification is regulated, and offer a unique target for tissue engineering.