The vascular smooth muscle cell (SMC) in mature animals is a highly specialized cell whose principal function is contraction. The fully differentiated or mature SMC proliferates at an extremely low rate and is a cell almost completely geared for contraction. It expresses a unique repertoire of contractile proteins, ion channels, and signaling molecules that are required for its contractile function and that when taken in aggregate clearly distinguish it from any other cell type. During vasculogenesis, however, the SMC's principal function is proliferation and production of matrix components of the blood vessel wall. Moreover, even in mature animals, the SMC retains remarkable plasticity, such that it can undergo relatively rapid and reversible changes in its phenotype in response to changes in local environmental cues normally required for maintenance of its differentiated state. A key to understanding SMC differentiation is to identify the key environmental signals and factors that induce or maintain the differentiated state of the SMC and to determine the molecular mechanisms that control the coordinate expression of genes encoding for proteins that are necessary for the contractile function of the SMC. The purpose of this review is to summarize our current knowledge of the regulation of SMC differentiation, with a particular emphasis on consideration of how this process is controlled during normal vascular development and how these control processes might be altered in vascular diseases such as atherosclerosis, which are characterized by marked alterations in the differentiated state of the SMC.