Recent work has demonstrated the importance of the epicardium in the development of the heart. During embryogenesis, these epithelial cells provide the progenitors for the epicardium, coronary smooth muscle, endothelium, and cardiac fibroblasts. The epicardium sends important signals to the developing myocardium. Still, analysis of these epithelial cells has lagged behind that of other cardiac cell types largely because of the lack of a defined experimental cell system in which epicardial cell differentiation can be studied. The present report examines the developmental potential of a cell line derived from rat epicardial mesothelial cells. These analyses demonstrate that the cell line retains many characteristics of the intact epithelium, including the ability to form a polarized epithelium and express many epicardial genes. Our data show for the first time that these cells retain the ability to produce mesenchyme in response to specific growth factors and, importantly, to generate smooth muscle cells. Thus, this study provides evidence that these cells can serve as an important model system for the analysis of the cellular and molecular mechanisms that govern epicardial development and function.