In the developing retina, the microvessels form by differentiation of endothelial precursor cells in a process referred to as vasculogenesis. Experiments using in vivo and in vitro model systems were designed to determine the specific influence of astrocytes on this process. Immunolocalization analyses of retinal vasculogenesis in vivo showed that astrocytes spread within the nerve fiber layer of the neonatal rat retina just ahead of the forming vessels. Then, endothelial precursor cells align themselves in register with the astrocytes. In contact with astrocytes, precursor cells differentiate as vascular endothelium, as indicated by lumen formation and patency to red blood cells. Experiments in vitro using cell culture and conditioned medium approaches showed that cell-cell contact between rat brain astrocytes and bovine retinal endothelial cells results in release of soluble factors, inhibiting endothelial cell growth and inducing morphological differentiation in capillary-like structures. Thus, it is suggested that astrocytes lay down the pattern for vasculogenesis and induce the elongation and alignment of endothelial precursor cells into a prevascular meshwork. In contact with astrocytes, precursor cells differentiate as vascular endothelium. Furthermore, this cell-cell contact with astrocytes apparently inhibits endothelial cell growth and stimulates their elongation, alignment, and morphogenic differentiation by means of the release or activation of soluble, growth factor-like substances.