The therapeutic exploitation of stem cell-derived vascular progenitor cells is limited by the heterogeneity of the cultures and by an incomplete understanding of molecular switches that control their differentiation either to endothelial or smooth muscle cells. We investigated the vascular potential of c-Kit+ cells isolated from mouse embryonic and induced pluripotent stem cells and identified a novel mechanism regulating their differentiation. In the present study, mouse embryonic stem cells were cultured on collagen IV-coated plates for 4 days and then the mixed population containing about 50% c-Kit+ cells was sorted. c-Kit+ progenitor cells were stimulated with PDGF or VEGF. Culture with PDGF gave rise to Î±-smooth muscle actin, calponin and smooth muscle myosin heavy chain positive smooth muscle cells. In the presence of VEGF, c-Kit+ cells differentiate towards endothelial lineage expressing Flk1, CD31, VE-cadherin and vWF. In particular, exposure to shear stress between day 3 and 5 significantly increased the expression of endothelial markers and improved tube formation capacity as shown in a 3-dimensional matrix assay. High level of Klf4 was detected at early stage of endothelial differentiation while a strong reduction occurred during smooth muscle differentiation. Indeed, infection with Klf4 adenovirus strongly induced differentiation to endothelial cells while strongly repressed smooth muscle markers. Thus, our data demonstrated for the first time that c-Kit+ cells are a suitable source of vascular progenitor cells and their differentiation is regulated by a key transcription factor, namely Klf4.