Vascular development depends on transforming growth factor beta (TGFbeta), but whether signalling of this protein is required for the development of endothelial cells (ECs), vascular smooth muscle cells (VSMCs) or both is unclear. To address this, we selectively deleted the type I (ALK5, TGFBR1) and type II (TbetaRII, TGFBR2) receptors in mice. Absence of either receptor in ECs resulted in vascular defects in the yolk sac, as seen in mice lacking receptors in all cells, causing embryonic lethality at embryonic day (E)10.5. Deletion of TbetaRII specifically in VSMCs also resulted in vascular defects in the yolk sac; however, these were observed at later stages of development, allowing the embryo to survive to E12.5. Because TGFbeta can also signal in ECs via ALK1 (ACVRL1), we replaced ALK5 by a mutant defective in SMAD2 and SMAD3 (SMAD2/3) activation that retained the ability to transactivate ALK1. This again caused defects in the yolk sac vasculature with embryonic lethality at E10.5, demonstrating that TGFbeta/ALK1 signalling in ECs cannot compensate for the lack of TGFbeta/ALK5-induced SMAD2/3 signalling in vivo. Unexpectedly, SMAD2 phosphorylation and alpha-smooth muscle actin (SMAalpha, ACTA2) expression occurred in the yolk sacs of ALK5(-/-) embryos and ALK5(-/-) embryonic stem cells undergoing vasculogenesis, and these processes could be blocked by an ALK4 (ACVR1B)/ALK5 inhibitor. Together, the data show that ALK5 is required in ECs and VSMCs for yolk sac vasculogenesis; in the absence of ALK5, ALK4 mediates SMAD2 phosphorylation and consequently SMAalpha expression.