In developing limb skin, peripheral nerves are required for arterial differentiation, and guide the pattern of arterial branching. In vitro experiments suggest that nerve-derived VEGF may be important for arteriogenesis, but its role in vivo remains unclear. Using a series of nerve-specific Cre lines, we show that VEGF derived from sensory neurons, motoneurons and/or Schwann cells is required for arteriogenesis in vivo. Arteriogenesis also requires endothelial expression of NRP1, an artery-specific coreceptor for VEGF(164) that is itself induced by VEGF. Our results provide the first evidence that VEGF is necessary for arteriogenesis from a primitive capillary plexus in vivo, and show that in limb skin the nerve is indeed the principal source of this signal. They also suggest a model in which a 'winner-takes-all' competition for VEGF may control arterial differentiation, with the outcome biased by a VEGF(164)-NRP1 positive-feedback loop. Our results also demonstrate that nerve-vessel alignment is a necessary, but not sufficient, condition for nerve-induced arteriogenesis. Different mechanisms therefore probably underlie these endothelial patterning and differentiation processes.