Adult bone marrow-derived mesenchymal stem cells (MSC) can differentiate into various cell types of mesenchymal origin, but mechanisms regulating such cellular changes are unclear. We have conducted co-culture experiments to examine whether mesenchymal stem cell differentiation is influenced by indirect or direct contact with differentiated cells. Cultured adult mesenchymal stem cells showed some characteristics of synthetic state vascular smooth muscle cells (SMC). When co-cultured with vascular endothelial cells (EC) without cell contact, they exhibited abundant well-organised smooth muscle alpha-actin (alpha-actin) filaments. Direct co-culture with endothelial cells resulted in increased smooth muscle alpha-actin mRNA and protein, yet also comprehensive disruption of smooth muscle alpha-actin filament organisation. In order to assess whether these cell contact effects on mesenchymal stem cells were cell type specific, we also analysed direct co-cultures of mesenchymal stem cells with dermal fibroblasts. However, these experiments were characterised by the appearance of abundant spindle-shaped myofibroblast-like cells containing organised smooth muscle alpha-actin filaments. Thus, direct contact with distinct differentiated cells may be a critical determinant of mesenchymal stem cell fate in blood vessels and other connective tissues.