Coronary artery disease is the most common cause of cardiac failure in the Western world, and to date there is no alternative to bypass surgery for severe coronary atherosclerosis. We report that c-kit-positive cardiac progenitor cells (CPCs) activated with insulin-like growth factor 1 and hepatocyte growth factor before their injection in proximity of the site of occlusion of the left coronary artery in rats, engrafted within the host myocardium forming temporary niches. Subsequently, CPCs divided and differentiated into endothelial cells and smooth muscle cells and, to a lesser extent, into cardiomyocytes. The acquisition of vascular lineages appeared to be mediated by the up-regulation of hypoxia-inducible factor 1alpha, which promoted the synthesis and secretion of stromal-derived factor 1 from hypoxic coronary vessels. Stromal-derived factor 1 was critical in the conversion of CPCs to the vascular fate. CPCs formed conductive and intermediate-sized coronary arteries together with resistance arterioles and capillaries. The new vessels were connected with the primary coronary circulation, and this increase in vascularization more than doubled myocardial blood flow in the infarcted myocardium. This beneficial effect, together with myocardial regeneration attenuated postinfarction dilated myopathy, reduced infarct size and improved function. In conclusion, locally delivered activated CPCs generate de novo coronary vasculature and may be implemented clinically for restoration of blood supply to the ischemic myocardium.