Background-Previous studies have shown that pericytes can differentiate into osteoblasts and form bone. This study investigated whether pericytes can also differentiate into chondrocytes and adipocytes. Methods and Results-Reverse transcription-polymerase chain reaction demonstrated that pericytes express mRNA for the chondrocyte markers Sox9, aggrecan, and type II collagen. Furthermore, when cultured at high density in the presence of a defined chondrogenic medium, pericytes formed well-defined pellets comprising cells embedded in an extracellular matrix rich in sulfated proteoglycans and type II collagen. In contrast, when endothelial cells were cultured under the same conditions, the pellets disintegrated after 48 hours. In the presence of adipogenic medium, pericytes but not endothelial cells expressed mRNA for peroxisome proliferator-activated receptor-␥2 (an adipocyte-specific transcription factor) and incorporated lipid droplets that stained with oil red O. To confirm that pericytes can differentiate along the chondrocytic and adipocytic lineages in vivo, these cells were inoculated into diffusion chambers and implanted into athymic mice for 56 days. Accordingly, mineralized cartilage, fibrocartilage, and a nonmineralized cartilaginous matrix with lacunae containing chondrocytes were observed within these chambers. Small clusters of cells that morphologically resembled adipocytes were also identified. Conclusions-These data demonstrate that pericytes are multipotent cells that may contribute to growth, wound healing, repair, and/or the development and progression of various pathological states.