Side population (SP) cells are a select cell population identified by a capacity to efflux Hoechst dye that are highly enriched for stem/progenitor cell activity. In this study, we found that SP cells comprised of CD45(+) and CD45(-) subtypes are present in the embryonic lung (E-SP) at levels varying with gestational age. Long-term in vivo competitive blood reconstitution studies demonstrated that hematopoeitic stem cell capacity resided within the CD45(+) E-SP cell subset. Immunophenotyping of CD45(-) E-SP cells determined that this population consists of two subtypes: CD31(-) and CD31(+). Limited gene expression profiling indicated that CD45(-)/CD31(-) E-SP cells have features of smooth muscle precursors, and give rise to smooth muscle in culture. On the other hand, CD45(-)/CD31(+) E-SP cells express genes characteristic of endothelium, but by themselves do not grow or differentiate in culture. Co-culture of CD45(-)/CD31(+) and CD45(-)/CD31(-) E-SP cells, however, resulted in the formation of complex tubular networks that express markers of endothelium. Together, these findings illustrate that embryonic lung SP cells are heterogeneous, composed of hematopoeitic and nonhematopoeitic progenitors, and may play a key role in the formation of the lung vasculature.