Adipose tissue-derived stem cells (ADSC) could potentially restore endothelial function in vasculogenic erectile dysfunction (ED). The mechanism for ADSC endothelial differentiation remained unidentified. To test whether ADSC could differentiate into endothelial cells in the penis and to identify the underlying mechanism of ADSC endothelial differentiation. For in vivo endothelial differentiation, ADSC were labeled with bromodeoxyuridine (BrdU), injected into rat corpora cavernosa, and localized by immunofluorescence and phase-contrast microscopy. For in vitro endothelial differentiation, ADSC were grown in endothelial growth medium 2 (EGM2), stained for endothelial markers CD31, von Willebrand Factor (vWF), and endothelial nitric oxide synthase (eNOS), and assessed for the ability to form tube-like structures in Matrigel and to endocytose acetylated low-density lipoprotein (Ac-LDL). To identify factors that promote ADSC endothelial differentiation, ADSC were grown in various media, each of which contained a specific combination of supplemental factors and assessed for LDL-uptake. PD173074, a selective inhibitor of fibroblast growth factor 2 (FGF2) receptor, was used to confirm the importance of FGF2 signaling for ADSC endothelial differentiation. In vivo endothelial differentiation was assessed by immunofluorescence microscopy. In vitro endothelial differentiation was assessed by immunofluorescence, Matrigel tube formation, and Ac-LDL uptake. Injected ADSC were localized to the sinusoid endothelium, some of which stained positive for both BrdU and endothelial antigen rat endothelial cell antigen. ADSC proliferated at a faster rate in EGM2 than in standard DMEM, expressed endothelial markers CD31, vWF, and eNOS, formed tube-like structures in Matrigel, and endocytosed Ac-LDL. These properties were greatly diminished when ADSC were grown in the absence of FGF2 but were unaffected when grown in the absence of vascular endothelial growth factor, insulin-like growth factor, or epidermal growth factor. Furthermore, ADSC displayed similar endothelial properties when grown in FGF2-supplemented basic medium as in EGM2. Finally, blockade of FGF2 signaling with PD173074 abrogated ADSC endothelial differentiation. ADSC could differentiate into endothelial cells in the penis. FGF2 signaling mediates ADSC endothelial differentiation.