Vascular pericytes can differentiate into osteoblast-like cells in vitro, suggesting that these cells may represent a potential source of osteoprogenitor cells in the adult. Pericyte differentiation is associated with a characteristic pattern of nodule formation and mineralisation. Nodules are formed in post-confluent cultures by the retraction of multilayered areas. Crystals of hydroxyapatite are deposited on the extracellular matrix of these nodules which then becomes mineralised. We now demonstrate that thrombospondin-1 (TSP-1) gene expression is modulated during pericyte differentiation in vitro. That is, the relative levels of TSP-1 (protein and mRNA) increased markedly during nodule formation and then decreased when mineralisation of the nodules had taken place. TSP-1 was localised throughout non-mineralised nodules but it was largely excluded from the inner mass of mineralised nodules. The production of a mineralised matrix by vascular pericytes was promoted by the presence of antibodies to TSP-1 in the culture medium and was inhibited by exogenous TSP-1. These effects did not appear to be mediated through the activation of latent TGF-beta, since neither exogenous TGF-beta nor neutralising antibodies to TGF-beta had any effect on the rate or extent of mineralisation seen in the pericyte cultures. Taken together these results suggest that high levels of TSP-1 inhibit pericyte mineralisation, supporting the view that this protein plays a role in pericyte differentiation and bone formation.