At postconfluence, cultured bovine pericytes isolated from retinal capillaries form three-dimensional nodule-like structures that mineralize. Using a combination of Northern and Southern blotting, in situ hybridization, and immunofluorescence we have demonstrated that this process is associated with the stage-specific expression of markers of primitive clonogenic marrow stromal cells (STRO-1) and markers of cells of the osteoblast lineage (bone sialoprotein, osteocalcin, osteonectin, and osteopontin). To demonstrate that the formation of nodules and the expression of these proteins were indicative of true osteogenic potential, vascular pericytes were also inoculated into diffusion chambers and implanted into athymic mice. When recovered from the host, chambers containing pericytes were found reproducibly to contain a tissue comprised of cartilage and bone, as well as soft fibrous connective tissue and cells resembling adipocytes. This is the first study to provide direct evidence of the osteogenic potential of microvascular pericytes in vivo. Our results are also consistent with the possibility that the pericyte population in situ serves as a reservoir of primitive precursor cells capable of giving rise to cells of multiple lineages including osteoblasts, chondrocytes, adipocytes, and fibroblasts.