Vascular endothelial cells cover the entire inner surface of blood vessels in the body. They play an important role in tissue homeostasis, fibrinolysis and coagulation, blood‐tissue exchange, vasotomie regulation, the vascularization of normal and neoplastic tissues, and blood cell activation and migration during physiological and pathological processes. It is therefore important to define the basic determinants of the endothelial phenotype and its modulation in response to different signals. Signal recognition, transduction, and processing are likely to be complex events dependent on the status of the target endothelial cell in a given organ or tissue. This status is a consequence of inductive and permissive interactions of a pluripotent cell with soluble and insoluble signaling molecules of the environment during embryonic and postnatal development. This re‐view will focus on the biological mechanisms involved in the differentiation of endothelial cells from the mesoderm and their subsequent functional heteroge‐neity in different organs and tissues under physiological as well as pathological conditions.—Risau, W. Differentiation of endothelium. FASEB J. 9, 926‐933(1995)