Activin-like kinase receptor 1 (ALK1) is a transforming growth factor (TGF)-beta type I receptor expressed in vascular mesenchyme, yet its function in vascular mesenchymal cells (VMC) is unclear. We examined ALK1 expression in human coronary atherosclerotic lesions and bovine and human VMC undergoing cellular condensation in vitro. We also examined the effect of activated ALK1 on cell proliferation and smooth muscle cell (SMC) differentiation. Our results showed that ALK1 was expressed in human coronary atherosclerotic lesions as determined by immunohistochemistry. ALK1 was also expressed in cellular condensations of bovine and human VMC as determined by real-time PCR and immunocytochemistry. Bone morphogenetic protein (BMP)-2, which is known to increase condensation size, increased ALK1 expression when induced from a BMP-2 adenoviral vector. In turn, activated ALK1 induced expression of matrix GLA protein (MGP), a BMP-2 inhibitor known to limit condensation size. Activated ALK1 enhanced proliferation of VMC as determined by 3H-thymidine incorporation, whereas MGP decreased proliferation. Activated ALK1 also enhanced expression of SMC lineage markers and ALK5, another TGF-beta type I receptor, as determined by immunoblotting, real-time PCR and immunocytochemistry. Anti-TGF-beta antibodies abolished expression of SMC markers in the presence of constitutively active ALK1, suggesting that ALK1 activation alone is not sufficient to promote SMC differentiation. We conclude that there is a balance between the actions of BMP-2 and MGP in the initiation of vascular mesenchymal cell condensation and SMC differentiation, and that targeting ALK1, BMP2 and/or MGP may lead to novel concepts of atherosclerosis treatment.