Mesenchymal stem cells (MSCs) are an important cell population in the bone marrow microenvironment. MSCs have the capacity to differentiate in vitro into several mesenchymal tissues including bone, cartilage, fat, tendon, muscle, and marrow stroma. This study was designed to isolate, expand, and characterize the differentiation ability of sheep bone marrow-derived MSCs and to demonstrate the possibility to permanently express a reporter gene. Bone marrow was collected from the iliac crest and mononuclear cells were separated by density gradient centrifugation. Sheep MSCs cell lines were stable characterized as CD44+ and CD34− and then transfected with a green fluorescent protein (GFP) reporter gene. The GFP expression was maintained in about half (46.6%) of cloned blastocysts produced by nuclear transfer of GFP+ sheep MSCs, suggesting the possibility to establish multipotent embryonic cells' lines carrying the fluorescent tag for comparative studies on the differentiation capacity of adult stem cells (MSCs) versus embryonic stem cells. We found that sheep MSCs under appropriate culture conditions could be induced to differentiate into adipocytes, chondrocytes, and osteoblast lineages. Our results confirm the plasticity of sheep MSCs and establish the foundation for the development of a pre-clinical sheep model to test the efficiency and safety of cell replacement therapy. J. Cell. Biochem. 114: 134–143, 2012. © 2012 Wiley Periodicals, Inc.