Angiogenesis, or neovascularization, is a finely balanced process controlled by pro- and anti-angiogenic factors. Vascular endothelial growth factor (VEGF) is a major pro-angiogenic factor, whereas pigment epithelial-derived factor (PEDF) is the most potent natural angiogenesis inhibitor. In this study, the regulatory role of bone marrow stromal cells (BMSCs) during angiogenesis was assessed by the endothelial differentiation potential, VEGF/PEDF production and responses to pro-angiogenic and hypoxic conditions. The in vivo regulation of blood vessel formation by BMSCs was also explored in a SCID mouse model. Results showed that PEDF was expressed more prominently in BMSCs compared to VEGF. This contrasted with human umbilical vein endothelial cells (HUVECs) where the expression of VEGF was higher than that of PEDF. The ratio of VEGF/PEDF gene expression in BMSCs increased when VEGF concentration reached 40ng/ml in the culture medium, but decreased at 80ng/ml. Under CoCl(2)-induced hypoxic conditions, the VEGF/PEDF ratio of BMSCs increased significantly in both normal and angiogenic culture media. There was no expression of endothelial cell markers in BMSCs cultured in either pro-angiogenic or hypoxia culture conditions when compared with HUVECs. The in vivo study showed that VEGF/PEDF expression closely correlated with the degree of neovascularization, and that hypoxia significantly induced pro-angiogenic activity in BMSCs. These results indicate that, rather than being progenitors of endothelial cells, BMSCs play an important role in regulating the neovascularization process, and that the ratio of VEGF and PEDF may, in effect, be an indicator of the pro- or anti-angiogenic activities of BMSCs.