Using an in vitro coculture system to mimic the interactions between the cells of the vessel wall, we have previously shown that pericytes and smooth muscle cells (SMC) inhibit the growth of capillary endothelial cells (EC). We have undertaken studies to determine the mechanism of this inhibition. Using conditioned media and affinity-purified antibodies to transforming growth factor beta (TGF-beta), we now demonstrate that activated TGF-beta produced in these cocultures mediates EC growth inhibition. No inhibitory activity was detected when media conditioned by individual cultures of EC, SMC, or pericytes were examined for their effect on EC growth. In contrast, media conditioned by cocultures of EC-SMC and EC-pericytes inhibited EC proliferation to the same degree as the coculture itself. Immunoadsorption of coculture-derived conditioned media with antibodies to TGF-beta eliminated the inhibitory activity. Acid activation of serum-free media conditioned by any of the cells cultured alone yielded inhibitory activity, whereas activation of coculture conditioned media did not increase its inhibitory activity. Addition of anti-TGF-beta neutralizing antibodies to cocultures blocked the pericyte-mediated EC growth inhibition. These results indicate that latent TGF-beta is produced by these cells and it is activated by a mechanism that requires contact between the two cell types.