Mesenchymal stem cells (MSCs) are thought to occupy a perivascular niche where they are exposed to signals originating from vascular cells. This study focused on the effects of endothelial cell (EC)-derived signals on MSC differentiation toward vascular cell lineages. Upon co-culture with two types of ECs, macrovascular (macro) ECs and microvascular (micro) ECs, the former caused MSCs to increase expression of both EC and smooth muscle cell (SMC) markers, while the latter induced expression of EC markers only. These marker changes in MSCs were linked to the extracellular matrixes secreted by the ECs (EC-matrix) rather than soluble EC-secreted factors. Beyond enhanced marker expression, EC-matrix also induced functional changes in MSCs indicative of development of a genuine vascular cell phenotype. These included enhanced incorporation into vessels and cytoskeletal localization of vascular SMC-specific contractile elements. The bioactivity of EC-matrix was sensitive to EDTA washes and required sulfated glycosaminoglycans. However, neither soluble VEGF nor substrate surfaces coated with fibronectin, collagen type IV, or laminin recreated the effects of EC-matrix on MSC vascular differentiation. In conclusion, these results identified EC-matrix as a critical regulator of vascular cell differentiation of MSCs. Elucidating these MSC–EC-matrix interactions and identifying the specific EC-matrix components involved will shed light on the perivascular signals seen by MSCs in vivo. J. Cell. Biochem. 107: 714–722, 2009. Published 2009 Wiley-Liss, Inc.