The differentiation of stem cells into smooth muscle cells (SMCs) plays an important role in vascular development and remodeling. In addition, stem cells represent a potential source of SMCs for regenerative medicine applications such as constructing vascular grafts. Previous studies have suggested that various biochemical factors, including transforming growth factor-beta (TGF-beta) and the Notch pathway, may play important roles in vascular differentiation. However, the interactions of these two signaling pathways in the differentiation of bone marrow mesenchymal stem cells (MSCs) have not been clearly defined. In this study, we profiled the gene expression in MSCs in response to TGF-beta, and showed that TGF-beta induced Notch ligand Jagged 1 (JAG1) and SMC markers, including smooth muscle alpha-actin (ACTA2), calponin 1 (CNN1), and myocardin (MYOCD), which were dependent on the activation of SMAD3 and Rho kinase. In addition, knocking down JAG1 expression partially blocked ACTA2 and CNN1 expression and completely blocked MYOCD expression, suggesting that JAG1 plays an important role in TGF-beta-induced expression of SMC markers. On the other hand, the activation of Notch signaling induced the expression of SMC markers in MSCs and human embryonic stem cells (hESCs). Notch activation in hESCs also resulted in an increase of neural markers and a decrease of endothelial markers. These results suggest that Notch signaling mediates TGF-beta regulation of MSC differentiation and that Notch signaling induces the differentiation of MSCs and hESCs into SMCs, which represents a novel mechanism involved in stem cell differentiation.