Objective Interactions between endothelial cells (ECs) and smooth muscle cells (SMCs) are fundamental in diverse cardiovascular processes such as arteriogenesis, atherosclerosis, and restenosis. We aimed to determine the intracellular signaling mechanisms by which ECs promote a differentiated SMC phenotype. Methods Bovine thoracic aorta ECs and SMCs were isolated and cultured. For co-culture studies, ECs were grown to confluence on one side of a semi-permeable Cyclopore membrane. SMCs were then plated on the opposite side of the membrane and cultured for 24 to 48 hours. For adenovirus experiments, SMCs were infected prior to plating opposite ECs. For conditioned media studies, SMCs cultured alone on plastic were treated with media harvested from EC/SMC in co-culture. SMC phenotype was assayed by microscopy and measurement of two-dimensional area, or by western blotting for contractile protein markers of differentiation. Akt activation was measured by western blotting for phospho-Serine 473. Results Although SMCs cultured alone exhibit a dedifferentiated synthetic phenotype, we report that bilayer co-culture with ECs induced a differentiated SMC phenotype as measured by morphology and cell area and expression of protein markers of differentiation, including contractile proteins and the cyclin-dependent kinase inhibitor p27 kip. The EC/SMC bilayer co-culture resulted in activation of the SMC protein kinase Akt, with no effect on total Akt expression. Similarly, conditioned media from co-cultured EC/SMC promoted rapid Akt phosphorylation and subsequent expression of differentiation protein markers in SMCs cultured alone. Adenoviral overexpression of constitutively active Akt in SMCs cultured alone mimicked the ability of ECs to induce SMC differentiation. Notably, inhibition of phosphoinositide 3 (PI 3)-kinase activity with wortmannin or adenoviral overexpression of a dominant-negative Akt prevented the EC-mediated effect on SMC morphology and differentiation protein marker expression. Conclusions ECs direct SMCs towards a differentiated phenotype through activation of the SMC PI 3-kinase/Akt pathway. Clinical relevance Interactions between endothelial cells (ECs) and smooth muscle cells (SMCs) are fundamental in diverse cardiovascular processes such as arteriogenesis, collateral blood vessel development, atherosclerosis, and restenosis. Alterations in SMC phenotype occur in each of these processes. Endothelial denudation has been suggested to contribute to the SMC proliferative response to vessel injury by angioplasty or other catheterization procedures. We have employed a co-culture approach to dissect the molecular signals that are dependent on the spatial relationship between ECs and SMCs, and have identified the importance of the PI3K/Akt pathway in EC-induced SMC differentiation. This pathway may suggest targets for therapeutic interventions for intimal hyperplasia and restenosis.