Gliogenesis is an important component of cortical development during the postnatal period. Two macroglial cells are generated in a particular order, i.e. astrocytes first and oligodendrocytes later. The mechanisms underlying this sequence of glial differentiation are unknown but interactions with blood vessels are postulated to play a role. We show, using a mouse in-vitro coculture system, that endothelial cells promote astrocyte differentiation but inhibit oligodendrocyte differentiation of postnatal cortical progenitors. Endothelial cells produce bone morphogenetic proteins (BMPs) to activate Sma- and Mad-related protein (Smad) signalling in progenitors and the effects of endothelial cells on glial differentiation are blocked by the BMP antagonist Noggin. Differentiation of progenitors into astrocytes results in the inhibition of endothelial cell growth, accompanied by changes in gene expression of angiogenic factors, indicating bidirectional interactions between progenitors and endothelial cells. In vivo, Smad signalling is activated in various types of cortical cells including progenitors in association with astrogenesis but is inactivated before the peak of oligodendrogenesis. Capillary vessels isolated from the developing cortex express high levels of BMPs. Together, these results demonstrate that endothelial cells regulate glial differentiation by secreting BMPs in vitro and suggest a similar role in cortical gliogenesis in vivo.