Coronary artery smooth muscle (SM) cells originate from proepicardial cells that migrate over the surface of the heart, undergo epithelial to mesenchymal transformation and invade the subepicardial and cardiac matrix. Prior to contact with the heart, proepicardial cells exhibit no expression of smooth muscle markers including SMαactin, SM22α, calponin, SMγactin or SM-myosin heavy chain detectable by RT-PCR or by immunostaining. To identify factors required for coronary smooth muscle differentiation, we excised proepicardial cells from Hamburger-Hamilton stage-17 quail embryos and examined them ex vivo. Proepicardial cells initially formed an epithelial colony that was uniformly positive for cytokeratin, an epicardial marker. Transcripts for flk-1, Nkx 2.5, GATA4 or smooth muscle markers were undetectable, indicating an absence of endothelial, myocardial or preformed smooth muscle cells. By 24 hours, cytokeratin-positive cells became SMαactin-positive. Moreover, serum response factor, undetectable in freshly isolated proepicardial cells, became strongly expressed in virtually all epicardial cells. By 72 hours, a subset of epicardial cells exhibited a rearrangement of cytoskeletal actin, focal adhesion formation and acquisition of a motile phenotype. Coordinately with mesenchymal transformation, calponin, SM22α and SMγactin became expressed. By 5-10 days, SM-myosin heavy chain mRNA was found, by which time nearly all cells had become mesenchymal. RT-PCR showed that large increases in serum response factor expression coincide with smooth muscle differentiation in vitro. Two different dominant-negative serum response factor constructs prevented the appearance of calponin-, SM22α- and SMγactin-positive cells. By contrast, dominant-negative serum response factor did not block mesenchymal transformation nor significantly reduce the number of cytokeratin-positive cells. These results indicate that the stepwise differentiation of coronary smooth muscle cells from proepicardial cells requires transcriptionally active serum response factor.