Human embryonic stem cells (hESC) have the potential to produce all of the cells in the body. They are able to self-renew indefinitely, potentially making them a source for large-scale production of therapeutic cell lines. Here, we developed a monolayer differentiation culture that induces hESC (WA09 and BG01) to form epithelial sheets with mesodermal gene expression patterns (BMP4, RUNX1, and GATA4). These E-cadherin+ CD90low cells then undergo apparent epithelial-mesenchymal transition for the derivation of mesenchymal progenitor cells (hESC-derived mesenchymal cells [hES-MC]) that by flow cytometry are negative for hematopoietic (CD34, CD45, and CD133) and endothelial (CD31 and CD146) markers, but positive for markers associated with mesenchymal stem cells (CD73, CD90, CD105, and CD166). To determine their functionality, we tested their capacity to produce the three lineages associated with mesenchymal stem cells and found they could form osteogenic and chondrogenic, but not adipogenic lineages. The derived hES-MC were able to remodel and contract collagen I lattice constructs to an equivalent degree as keloid fibroblasts and were induced to express alpha-smooth muscle actin when exposed to transforming growth factor (TGF)-beta1, but not platelet derived growth factor-B (PDGF-B). These data suggest that the derived hES-MC are multipotent cells with potential uses in tissue engineering and regenerative medicine and for providing a highly reproducible cell source for adult-like progenitor cells.