Tissue regeneration on acellular matrix grafts has great potential for therapeutic organ reconstruction. However, hollow organs such as the bladder require smooth muscle cell regeneration, the mechanisms of which are not well defined. We investigated the mechanisms by which bone marrow cells participate in smooth muscle formation during urinary bladder regeneration, using in vivo and in vitro model systems. In vivo bone marrow cells expressing green fluorescent protein were transplanted into lethally irradiated rats. Eight weeks following transplantation, bladder domes of the rats were replaced with bladder acellular matrix grafts. Two weeks after operation transplanted marrow cells repopulated the graft, as evidenced by detection of fluorescent staining. By 12 weeks they reconstituted the smooth muscle layer, with native smooth muscle cells (SMC) infiltrating the graft. In vitro, the differential effects of distinct growth factor environments created by either bladder urothelial cells or bladder SMC on phenotypic changes of marrow cells were examined. First, supernatants of cultured bladder cells were used as conditioned media for marrow cells. Second, these conditions were reconstituted with exogenous growth factors. In each case, a growth factor milieu characteristic of SMC induced an SMC-like phenotype in marrow cells, whereas that of urothelial cells failed. These findings suggest that marrow cells differentiate into smooth muscle on acellular matrix grafts in response to the environment created by SMC.