Multiple signaling pathways control the specification of endothelial cells (ECs) to become arteries or veins during vertebrate embryogenesis. Current models propose that a cascade of Hedgehog (Hh), vascular endothelial growth factor (VEGF), and Notch signaling acts instructively on ECs to control the choice between arterial or venous fate. Differences in the phenotypes induced by Hh, VEGF, or Notch inhibition suggest that not all of the effects of Hh on arteriovenous specification are mediated by VEGF. We establish that full derepression of the Hh pathway in ptc1;ptc2 mutants converts the posterior cardinal vein into a second arterial vessel that manifests intact arterial gene expression, intersegmental vessel sprouting, and HSC gene expression. Importantly, although VEGF was thought to be absolutely essential for arterial fates, we find that normal and ectopic arterial differentiation can occur without VEGF signaling in ptc1;ptc2 mutants. Furthermore, Hh is able to bypass VEGF to induce arterial differentiation in ECs via the calcitonin receptor-like receptor, thus revealing a surprising complexity in the interplay between Hh and VEGF signaling during arteriovenous specification. Finally, our experiments establish a dual function of Hh during induction of runx1(+) HSCs.