Recruitment and retention of circulating progenitor cells at the site of injured or ischemic tissues facilitates adult neo-vascularization. We hypothesized that cell therapy could modulate local neo-vascularization through the vascular endothelial growth factor (VEGF)/stromal cell-derived factor-1 (SDF-1) axis and by paracrine effects on local endothelial cells. We isolated from rat bone marrow a subset of multipotent adult progenitor cell-derived progenitor cells (MDPC). In vitro, MDPCs secreted multiple cytokines related to inflammation and angiogenesis, including monocyte chemotactic protein-1, SDF-1, basic fibroblast growth factor, and VEGF, and expressed the chemokine receptors CXCR4 and VEGFR1. To investigate in vivo properties, we transplanted MDPCs into the ischemic hind limbs of rats. Elevated levels of the chemokine SDF-1 and colocalization of CD11b(+) cells marked the initial phase of tissue remodeling after cell transplantation. Prolonged engraftment was observed in the adventitial-medial border region of arterioles of ischemic muscles. However, engrafted cells did not differentiate into endothelial or smooth muscle cells. Limb perfusion normalized 4 weeks after cell injection. Inhibition of SDF-1 reduced the engraftment of transplanted cells and decreased endothelial cell proliferation. These findings suggest a two-stage model whereby transplanted MDPCs modulate wound repair through recruitment of inflammatory cells to ischemic tissue. This is an important potential mechanism for cell transplantation, in addition to the direct modulation of local vascular cells through paracrine mechanisms.