Hereditary haemorrhagic telangiectasia (HHT) is an autosomal dominant disorder in humans that is characterised by multisystemic vascular dyplasia and recurrent haemorrhage. Germline mutations in one of two different genes, endoglin or ALK1 can cause HHT. Both are members of the transforming growth factor (TGF) beta receptor family of proteins, and are expressed primarily on the surface of endothelial cells (ECs). Mice that lack endoglin or activin receptor like kinase (ALK) 1 die at mid-gestation as a result of defects in the yolk sac vasculature. Here, we have analyzed TGFbeta signalling in yolk sacs from endoglin knockout mice and from mice with endothelial-specific deletion of the TGFbeta type II receptor (TbetaRII) or ALK5. We show that TGFbeta/ALK5 signalling from endothelial cells to adjacent mesothelial cells is defective in these mice, as evidenced by reduced phosphorylation of Smad2. This results in the failure of vascular smooth muscle cells to differentiate and associate with endothelial cells so that blood vessels remain fragile and become dilated. Phosphorylation of Smad2 and differentiation of smooth muscle can be rescued by culture of the yolk sac with exogenous TGFbeta1. Our data show that disruption of TGFbeta signalling in vascular endothelial cells results in reduced availability of TGFbeta1 protein to promote recruitment and differentiation of smooth muscle cells, and provide a possible explanation for weak vessel walls associated with HHT.