Nerves and blood vessels are branched structures, but whether their branching patterns are established independently or coordinately is not clear. Here we show that arteries, but not veins, are specifically aligned with peripheral nerves in embryonic mouse limb skin. Mutations that eliminate peripheral sensory nerves or Schwann cells prevent proper arteriogenesis, while those that disorganize the nerves maintain the alignment of arteries with misrouted axons. In vitro, sensory neurons or Schwann cells can induce arterial marker expression in isolated embryonic endothelial cells, and VEGF(164/120) is necessary and sufficient to mediate this induction. These data suggest that peripheral nerves provide a template that determines the organotypic pattern of blood vessel branching and arterial differentiation in the skin, via local secretion of VEGF.