Bone marrow-derived mesenchymal stem cells (BMSCs) have been proved to be capable of differentiating into endothelial cells (ECs), however, the differentiation efficiency is rather low. Sonic hedgehog (Shh), an important factor in vascular development and postnatal angiogenesis, exerted promotional effect on new vessel formation in the ischemic animal models. Therefore, the current study aims to investigate whether Shh could induce the endothelial differentiation of BMSCs both in vitro and in vivo, as well as the mechanism of differentiation induction. The current study over-expressed Shh in BMSCs by lentivirus transduction. Reverse-transcription quantitative polymerase chain reaction (RT-qPCR) analysis was performed to determine the angiogenic factors in both control BMSCs and Shh over-expressed BMSCs. Immunocytochemistry was also conducted to examine the EC markers. Angiogenesis was determined by in vitro tube-forming assay on Matrigel and in vivo Matrigel plug in severe combined immunodeficient (SCID) mice. Last, mRNA sequencing analysis was used to elaborate the underlying mechanisms. Loss of function study was performed by vascular endothelial growth factor D (VEGF-D) siRNA. Shh expression was increased by about 3,000-fold and 5,000-fold at 3 days-transfection and 7 days-transfection, respectively. Patched 1 (Ptch1), the receptor for Shh, had a two-fold increase after transduction. The angiogenic factors such as hepatocyte growth factor (HGF), angiopoietin-1 (Ang-1), insulin-like growth factor 1 (IGF1) and vascular endothelial growth factor A (VEGF-A) had at least a 1.5-fold increase after transduction. Expression of EC-lineage markers, CD31 and VE-cadherin, on Shh-overexpressed BMSCs were increasingly detected by immunocytostaining. Angiogenesis of BMSCs could be efficiently induced by Shh overexpression in the in vitro tube-formation assay and in vivo Matrigel plug. Additionally, mRNA sequencing analysis revealed that Shh activation upregulated the expression of several pro-angiogenic factors, like Angptl4, Egfl6, VEGF-D. Loss of function study by VEGF-D siRNA confirmed that Shh enhanced the angiogenic ability of BMSCs via VEGF-D. This study demonstrated that Shh could promote endothelial differentiation of BMSCs via VEGF-D.