The Hand gene family encodes highly conserved basic helix-loop-helix (bHLH) transcription factors that play crucial roles in cardiac and vascular development in vertebrates. In Drosophila, a single Hand gene is expressed in the three major cell types that comprise the circulatory system: cardioblasts, pericardial nephrocytes and lymph gland hematopoietic progenitors, but its function has not been determined. Here we show that Drosophila Hand functions as a potent transcriptional activator, and converting it into a repressor blocks heart and lymph gland formation. Disruption of Hand function by homologous recombination also results in profound cardiac defects that include hypoplastic myocardium and a deficiency of pericardial and lymph gland hematopoietic cells, accompanied by cardiac apoptosis. Targeted expression of Hand in the heart completely rescued the lethality of Hand mutants, and cardiac expression of a human HAND gene, or the caspase inhibitor P35, partially rescued the cardiac and lymph gland phenotypes. These findings demonstrate evolutionarily conserved functions of HAND transcription factors in Drosophila and mammalian cardiogenesis, and reveal a previously unrecognized requirement of Hand genes in hematopoiesis.