It has been suggested that a vascular-like cell has multipotent regenerative and mesenchymal lineage relationships. The identity of this stem/progenitor cell has remained elusive. We report here that adult central nervous system (CNS) capillaries contain a distinct population of microvascular cells, the pericyte that are nestin/NG2 positive and in response to basic fibroblast growth factor (bFGF) differentiate into cells of neural lineage. In their microvascular location, pericytes express nestin and NG2 proteoglycan. In serum containing media primary (0 to 7 day old) CNS pericytes are nestin positive, NG2 positive, alpha smooth muscle actin (alphaSMA) positive, and do not bind the endothelial cell specific griffonia symplicifolia agglutinin (GSA). In serum containing media, pericytes do not undergo neurogenesis but are induced to express alphaSMA. In bFGF containing media without serum, CNS pericytes form small clusters and multicellular spheres. Differentiated spheres expressed neuronal and glial cell markers. After disruption and serial dilution, differentiated spheres were capable of self-renewal. When differentiated spheres were disrupted and cultured in the presence of serum, multiple adherent cell populations were identified by dual and triple immunocytochemistry. Cells expressing markers characteristic of pericytes, neurons, and glial cells were generated. Many of the cells exhibited dual expression of differentiation markers. With prolonged culture fully differentiated cells of neural lineage were present. Results indicate that adult CNS microvascular pericytes have neural stem cell capability.