The annexin A5 gene (Anxa5) was recently found to be expressed in the developing and adult vascular system as well as the skeletal system. In this paper, the expression of an Anxa5-lacZ fusion gene was used to define the onset of expression in the vasculature and to characterize these Anxa5-lacZ-expressing vasculature-associated cells. After blastocyst implantation, Anxa5-lacZ-positive cells were first detected in extra-embryonic tissues and in angioblast progenitors forming the primary vascular plexus. Later, expression is highly restricted to perivascular cells in most blood vessels resembling pericytes or vascular smooth muscle cells. Viable Anxa5-lacZ+ perivascular cells were isolated from embryos as well as adult brain meninges by specific staining with fluorescent X-gal substrates and cell-sorting. These purified lacZ+ cells specifically express known markers of pericytes, but also markers characteristic for stem cell populations. In vitro and in vivo differentiation experiments show that this cell pool expresses early markers of chondrogenesis, is capable of forming a calcified matrix and differentiates into adipocytes. Hence, Anxa5 expression in perivascular cells from mouse defines a novel population of cells with a distinct developmental potential.