<div>There is presently a very limited understanding of the mechanisms that underlie the evolution of new cell types. The skeleton-forming primary mesenchyme cells (PMCs) of euechinoid sea urchins, derived from the micromeres of the 16-cell embryo, are an example of a</div><div>recently evolved cell type. All adult echinoderms have a calcite-based endoskeleton, a synapomorphy of the Ambulacraria. Only euechinoids have a micromere-PMC lineage, however, which evolved through the co-option of the adult skeletogenic program into the</div><div>embryo. During normal development, PMCs alone secrete the embryonic skeleton. Other</div><div>mesoderm cells, known as blastocoelar cells (BCs), have the potential to produce a skeleton, but a PMC-derived signal ordinarily prevents these cells from expressing a skeletogenic</div><div>fate and directs them into an alternative developmental pathway. Recently, it was shown</div><div>that vascular endothelial growth factor (VEGF) signaling plays an important role in PMC differentiation and is part of a conserved program of skeletogenesis among echinoderms.</div><div>Here, we report that VEGF signaling, acting through ectoderm-derived VEGF3 and its cognate receptor, VEGF receptor (VEGFR)-10-Ig, is also essential for the deployment of the</div><div>skeletogenic program in BCs. This VEGF-dependent program includes the activation of</div><div>aristaless-like homeobox 1 (alx1), a conserved transcriptional regulator of skeletogenic</div><div>specification across echinoderms and an example of a “terminal selector” gene that controls</div><div>cell identity. We show that PMCs control BC fate by sequestering VEGF3, thereby preventing activation of alx1 and the downstream skeletogenic network in BCs. Our findings provide</div><div>an example of the regulation of early embryonic cell fates by direct competition for a</div><div>secreted signaling ligand, a developmental mechanism that has not been widely recognized. Moreover, they reveal that a novel cell type evolved by outcompeting other embryonic</div><div>cell lineages for an essential signaling ligand that regulates the expression of a gene controlling cell identity.</div>