Human mesenchymal stem cells (hMSCs) are multipotent cells that can differentiate into many cell types. Chondrogenesis is induced in hMSCs cultured as a micromass pellet to mimic cellular condensation during cartilage development, and exposed to transforming growth factor beta (TGFbeta). Interestingly, TGFbeta can also induce hMSC differentiation to smooth-muscle-like cell types, but it remains unclear what directs commitment between these two lineages. Our previous work revealed that cell shape regulates hMSC commitment between osteoblasts and adipocytes through RhoA signaling. Here we show that cell shape also confers a switch between chondrogenic and smooth muscle cell (SMC) fates. Adherent and well-spread hMSCs stimulated with TGF beta 3 upregulated SMC genes, whereas cells allowed to attach onto micropatterned substrates, but prevented from spreading and flattening, upregulated chondrogenic genes. Interestingly, cells undergoing SMC differentiation exhibited little change in RhoA, but significantly higher Rac1 activity than chondrogenic cells. Rac1 activation inhibited chondrogenesis and was necessary and sufficient for inducing SMC differentiation. Furthermore, TGF beta 3 and Rac1 signaling upregulated N-cadherin, which was required for SMC differentiation. These results demonstrate a chondrogenic-SMC fate decision mediated by cell shape, Rac1, and N-cadherin, and highlight the tight coupling between lineage commitment and the many changes in cell shape, cell-matrix adhesion, and cell-cell adhesion that occur during morphogenesis.