Cells derived from the epicardium are required for coronary vessel development. Transforming growth factor beta (TGFbeta) induces loss of epithelial character and smooth muscle differentiation in chick epicardial cells. Here, we show that epicardial explants from embryonic day (E) 11.5 mouse embryos incubated with TGFbeta1 or TGFbeta2 lose epithelial character and undergo smooth muscle differentiation. To further study TGFbeta Signaling, we generated immortalized mouse epicardial cells. Cells from E10.5, 11.5, and 13.5 formed tightly packed epithelium and expressed the epicardial marker Wilm's tumor 1 (WT1). TGFbeta induced the loss of zonula occludens-1 (ZO-1) and the appearance of SM22alpha and calponin consistent with smooth muscle differentiation. Inhibition of activin receptor-like kinase (ALK) 5 or p160 rho kinase activity prevented the effects of TGFbeta while inhibition of p38 mitogen activated protein (MAP) kinase did not. These data demonstrate that TGFbeta induces epicardial cell differentiation and that immortalized epicardial cells provide a suitable model for differentiation.