The forkhead transcription factors regulate the correct organization of vascular system. One of them, Foxo1 is an important physiological regulator of endothelial cell morphology in response to VEGF, while underlying mechanisms are largely unknown. In order to elucidate the cellular function of Foxo1, we used a three-dimensional culture system for the differentiation of Flk1-expressing mesodermal precursor cells derived from ES cells to cord forming endothelial cells and associating vascular smooth muscle cells. While Foxo1(+/+) endothelial cells organized into long vessel-like structures associated with smooth muscle cells, Foxo1(-/-) endothelial cells could form only short sprouts. Foxo1(-/-) endothelial cells have punctate accumulation of filamentous actin, thick circumferential bundles of microtubules with small spikes at the tip of cells, and no interaction with smooth muscle cells. Our results suggest the involvement of Foxo1 in cytoskeletal remodeling of endothelial cells and recruitment of smooth muscle cells during vascular development.