The creation of vascularized engineered tissues of clinically relevant size is a major challenge of tissue engineering. While it is known that endothelial and mural vascular cells are integral to the formation of stable blood vessels, the specific cell types and optimal conditions for engineered vascular networks are poorly understood. To this end, we investigated the vasculogenic potential of human mesenchymal stem cell (MSC) populations derived from three different sources: (a) bone marrow aspirates; (b) perivascular cells from the umbilical cord vein; and (c) perivascular cells from the umbilical cord artery. Cell populations were isolated and identified as MSCs according to their phenotypes and differentiation potential. Human umbilical vein endothelial cells (HUVECs) were used as a standard for endothelial cells. A novel co-culture system was developed to study cell–cell interactions in a spatially controlled three-dimensional (3D) fibrin hydrogel model. Using microfluidic patterning, it was possible to localize hydrogel-encapsulated HUVECs and MSCs within separate channels spaced at 500, 1000 or 2000 µm. All three MSC populations had similar expression profiles of mesenchymal cell markers and similar capacity for osteogenic and adipogenic differentiation. However, bone marrow-derived MSCs (but not umbilical vein or artery derived MSCs) showed strong distance-dependent migration toward HUVECs and supported the formation of stable vascular networks resembling capillary-like vasculature. The presented approach provides a simple and robust model to study the cell–cell communication of relevance to engineering vascularized tissues. Copyright © 2009 John Wiley & Sons, Ltd.