Vascular tissue engineering requires a ready source of endothelial cells and perivascular cells. Here, we evaluated human bone marrow-derived mesenchymal stem cells (hMSCs) for use as vascular progenitor cells in tissue engineering and regenerative medicine. hMSCs expressed a panel of smooth muscle markers in vitro including the cardiac/smooth muscle-specific transcription coactivator, myocardin. Cell-cell contact between endothelial cells and hMSCs up-regulated the transcription of myocardin. hMSCs efficiently stabilized nascent blood vessels in vivo by functioning as perivascular precursor cells. The engineered blood vessels derived from human umbilical cord vein endothelial cells and hMSCs remained stable and functional for more than 130 days in vivo. On the other hand, we could not detect differentiation of hMSCs to endothelial cells in vitro, and hMSCs by themselves could not form conduit for blood flow in vivo. Similar to normal perivascular cells, hMSC-derived perivascular cells contracted in response to endothelin-1 in vivo. In conclusion, hMSCs are perivascular cell precursors and may serve as an attractive source of cells for use in vascular tissue engineering and for the study of perivascular cell differentiation.