The phloem, located within the vascular system, is critical for delivery of nutrients and signaling molecules throughout the plant body. Although the morphological process and several factors regulating phloem differentiation have been reported, the molecular mechanism underlying its initiation remains largely unknown. Here, we report that the small peptide‐coding gene, CLAVATA 3 (CLV3)/EMBEYO SURROUNDING REGION 25 (CLE25), the expression of which begins in provascular initial cells of 64‐cell‐staged embryos, and continues in sieve element‐procambium stem cells and phloem lineage cells, during post‐embryonic root development, facilitates phloem initiation in Arabidopsis. Knockout of CLE25 led to delayed protophloem formation, and in situ expression of an antagonistic CLE25_G6T peptide compromised the fate‐determining periclinal division of the sieve element precursor cell and the continuity of the phloem in roots. In stems of CLE25_G6Tplants the phloem formation was also compromised, and procambial cells were over‐accumulated. Genetic and biochemical analyses indicated that a complex, consisting of the CLE‐RESISTANT RECEPTOR KINASE (CLERK) leucine‐rich repeat (LRR) receptor kinase and the CLV2 LRR receptor‐like protein, is involved in perceiving the CLE25 peptide. Similar to CLE25, CLERK was also expressed during early embryogenesis. Taken together, our findings suggest that CLE25 regulates phloem initiation in Arabidopsis through a CLERK‐CLV2 receptor complex.