The cell lineages that form the transporting tissues (xylem and phloem) and the intervening pluripotent procambial tissue originate from stem cells near the root tip. We demonstrate that in Arabidopsis, cytokinin phytohormones negatively regulate protoxylem specification. AHP6, an inhibitory pseudophosphotransfer protein, counteracts cytokinin signaling, allowing protoxylem formation. Conversely, cytokinin signaling negatively regulates the spatial domain of AHP6 expression. Thus, by controlling the identity of cell lineages, the reciprocal interaction of cytokinin signaling and its spatially specific modulator regulates proliferation and differentiation of cell lineages during vascular development, demonstrating a previously unrecognized regulatory circuit underlying meristem organization.