Infantile hemangioma (IH) is the most prevalent vascular tumor during infancy, characterized by a rapid proliferation phase of disorganized blood vessels and spontaneous involution. IH possibly arises from a special type of multipotent stem cells called hemangioma stem cells (HemSCs), which could differentiate into endothelial cells, pericytes, and adipocytes. However, the underlying mechanisms that regulate the cell fate determination of HemSCs remain elusive. In this study, we unveil KLF2 as a candidate transcription factor involved in the control of HemSCs differentiation. KLF2 exhibits high expression in endothelial cells in proliferating IH but diminishes in adipocytes in involuting IH. Using a combination of in vitro culture of patient-derived HemSCs and HemSCs implantation mouse models, we show that KLF2 governs the proliferation, apoptosis, and cell cycle progression of HemSCs. Importantly, KLF2 acts as a crucial determinant of HemSC fate, directing their differentiation toward endothelial cells while inhibiting adipogenesis. Knockdown of KLF2 induces a proadipogenic transcriptome in HemSCs, leading to impaired blood vessel formation and accelerated adipocyte differentiation. Collectively, our findings highlight KLF2 as a critical regulator controlling the progression and involution of IH by modulating HemSC fate decisions.