Smooth muscle cell containing organs (bladder, heart, blood vessels) are damaged by a variety of pathological conditions necessitating surgery or organ replacement. Currently, regeneration of contractile tissues is hampered by lack of functional smooth muscle cells. Multipotent skin derived progenitor cells (SKPs) can easily be isolated from adult skin and can be differentiated in vitro into contractile smooth muscle cells by exposure to FBS. Here we demonstrate an inhibitory effect of a pathologic contractile organ microenvironment on smooth muscle cell differentiation of SKPs. In vivo, urinary bladder strain induces microenvironmental changes leading to de-differentiation of fully differentiated bladder smooth muscle cells. Co-culture of SKPs with organoids isolated from ex vivo stretched bladders or exposure of SKPs to diffusible factors released by stretched bladders (e.g. bFGF) suppresses expression of smooth muscle markers (alpha SMactin, calponin, myocardin, myosin heavy chain) as demonstrated by qPCR and immunofluorescent staining. Rapamycin, an inhibitor of mTOR signalling, previously observed to prevent bladder strain induced de-differentiation of fully differentiated smooth muscle cells in vitro, inhibits FBS-induced smooth muscle cell differentiation of undifferentiated SKPs. These results suggest that intended precursor cell differentiation may be paradoxically suppressed by the disease context for which regeneration may be required. Organ-specific microenvironment contexts, particularly prevailing disease, may play a significant role in modulating or attenuating an intended stem cell phenotypic fate, possibly explaining the variable and inefficient differentiation of stem cell constructs in in vivo settings. These observations must be considered in drafting any regeneration strategies.