We isolated a clonal cell line (4E) from kidneys of mice expressing green fluorescent protein controlled by the endothelial-specific Tie2 promoter. When grown in a three-dimensional matrigel matrix they formed a fluorescent capillary network. In vivo angiogenesis assays using growth factor-depleted matrigel implanted plugs promoted a moderate angiogenesis of host endothelial cells. Using vascular endothelial growth factor (VEGF)-A and fibroblast growth factor-2 in the plugs containing 4E-cells resulted in a robust vasculogenesis. Transplantation of 4E cells into mice with acute renal ischemia showed selective engraftment in the ischemic kidney which promoted tubular regeneration by increasing epithelial proliferation and inhibiting apoptosis. This resulted in an accelerated functional recovery 3 days after ischemia. These mice showed a 5-fold increase in tissue VEGF expression compared to controls, but no difference in plasma VEGF level corresponding with better preservation of peritubular capillaries, perhaps due to a local paracrine effect following systemic 4E infusion. One month after ischemia, 9% of engrafted 4E cells expressed green fluorescent protein in the peritubular region while half of them expressed alpha-smooth muscle actin. Our study shows that kidney mesenchymal stem cells are capable of differentiation toward endothelial and smooth muscle cell lineages in vitro and in vivo, support new blood vessel formation in favorable conditions and promote functional recovery of an ischemic kidney.