Fibroblasts are heterogeneous mesenchymal cells that play important roles in the production and maintenance of extracellular matrix. Although their heterogeneity is recognized, progenitor progeny relationships among fibroblasts and the factors that control fibroblast differentiation are poorly defined. The current study was designed to develop a reliable method that would permit in vitro differentiation of fibroblast-like cells from human and murine embryonic stem cells (ESCs). Undifferentiated ESCs were differentiated into embryoid bodies (EBs) with differentiation media. EBs were then cast into type I collagen gels and cultured for 21 d with basal media. The spindle-shaped cells that subsequently grew from the EBs were released from the gels and subsequently cultured as monolayers in basal media supplemented with serum. Differentiated cells showed a characteristic spindle-shaped morphology and had ultrastructural features consistent with fibroblasts. Immunocytochemistry showed positive staining for vimentin and alpha-smooth muscle actin but was negative for stage-specific embryonic antigens and cytokeratins. Assays of fibroblast function, including proliferation, chemotaxis, and contraction of collagen gels demonstrated that the differentiated cells, derived from both human and murine ESCs, responded to transforming growth factor-β1 and prostaglandin E(2) as would be expected of fibroblasts, functions not expected of endothelial or epithelial cells. The current study demonstrates that cells with the morphologic and functional features of fibroblasts can be reliably derived from human and murine ESCs. This methodology provides a means to investigate and define the mechanisms that regulate fibroblast differentiation.