Progenitors of the zebrafish pronephros, red blood and trunk endothelium all originate from the ventral mesoderm and often share lineage with one another, suggesting that their initial patterning is linked. Previous studies have shown that spadetail (spt) mutant embryos, defective in tbx16 gene function, fail to produce red blood cells, but retain the normal number of endothelial and pronephric cells. We report here that spt mutants are deficient in all the types of early blood, have fewer endothelial cells as well as far more pronephric cells compared to wildtype. In vivo cell tracing experiments reveal that blood and endothelium originate in spt mutants almost exclusively from the dorsal mesoderm whereas, pronephros and tail originate from both dorsal and ventral mesoderm. Together these findings suggest possible defects in posterior patterning. In accord with this, gene expression analysis show that mesodermal derivatives within the trunk and tail of spt mutants have acquired more posterior identity. Secreted signaling molecules belonging to the Fgf, Wnt and Bmp families have been implicated as patterning factors of the posterior mesoderm. Further investigation demonstrate that Fgf and Wnt signaling are elevated throughout the nonaxial region of the spt gastrula. By manipulating Fgf signaling we show that Fgfs both promote pronephric fate and repress blood and endothelial fate. We conclude that Tbx16 plays an important role in regulating the balance of intermediate mesoderm fates by attenuating Fgf activity.