The kidney and vasculature are intimately linked both functionally and during development, when nephric and blood/vascular progenitor cells occupy adjacent bands of mesoderm in zebrafish and frog embryos. Developmental mechanisms that underlie the differentiation of kidney versus blood/vascular lineages remain unknown. The odd skipped related1 (osr1) gene encodes a zinc-finger transcription factor that is expressed in the germ ring mesendoderm and subsequently in the endoderm and intermediate mesoderm, prior to the expression of definitive kidney or blood/vascular markers. Knockdown of osr1 in zebrafish embryos resulted in a complete, segment-specific loss of anterior kidney progenitors and a compensatory increase in the number of angioblast cells in the same trunk region. Histology revealed a subsequent absence of kidney tubules, an enlarged cardinal vein and expansion of the posterior venous plexus. Altered kidney versus vascular development correlated with expanded endoderm development in osr1 knockdowns. Combined osr1 loss of function and blockade of endoderm development by knockdown of sox32/casanova rescued anterior kidney development. The results indicate that osr1 activity is required to limit endoderm differentiation from mesendoderm; in the absence of osr1, excess endoderm alters mesoderm differentiation, shifting the balance from kidney towards vascular development.