AIMS: The implication of circulating hematopoietic CD34(+) progenitors in vasculature is hampered by the incomprehension on their characterization and plasticity mediated by their cellular microenvironment. We investigated how vascular smooth muscle cells (SMCs) and their interactions with endothelial cells (ECs) affect the behavior and plasticity of CD34(+)CD31(+) progenitors and the underlying mechanisms. METHODS AND RESULTS: Human peripheral blood-derived CD34(+)CD31(+) cells were directly transplanted into injured arteries in vivo and co-cultured with ECs and SMCs in vitro. CD34(+)CD31(+) progenitors injected into wire-injured mouse arteries differentiated into ECs and macrophages in the neoendothelial layer and neointima, respectively. SMC-co-culture increases CD34(+)CD31(+) cell mobility, adhesion to and transmigration across ECs. Sorted CD34(+)CD31(+) progenitors that adhered to ECs co-cultured with SMCs have the capacity to form capillary-like structures in Matrigel and chimeric blood vessels in vivo. Sorted transmigrated progenitors give rise to macrophages, with increased pro-angiogenic activity. These differentiations of CD34(+)CD31(+) progenitors into ECs and macrophages are mediated by beta(2)-integrin and Notch-1, respectively. beta(2)-integrin and Notch-1 are activated by their counterligands, intercellular adhesion molecule-1 (ICAM-1) and jagged-1, which are highly expressed in the neoendothelium and neointima in injured arteries. Intraarterial injection of beta(2)-integrin-activated CD34(+)CD31(+) progenitors into wire-injured mice arteries inhibits neointima formation. CONCLUSION: Our findings indicate that the peripheral vascular niches composed of ECs and SMCs may predispose hematopoietic CD34(+)CD31(+) progenitors to differentiate into ECs and macrophages through the activations of the ICAM-1/beta(2)-integrin and jagged-1/Notch-1 cascades, respectively.