Previous studies have shown that during avian heart development, epicardial and coronary vascular smooth muscle precursors are derived from the proepicardium, a derivative of the developing liver. This finding led to a model of coronary vascular development in which epicardial cells migrate over the postlooped heart, followed by migration of committed endothelial and smooth muscle precursors from the proepicardium through the subepicardial matrix where the coronary arteries develop. Here we show that epicardial cells undergo epithelial–mesenchymal transformation to become coronary vascular smooth muscle, perivascular fibroblasts, and intermyocardial fibroblasts. We began by establishing primary cultures of quail epicardial cells that retain morphologic and antigenic identity to epicardial cellsin vivo.Quail epicardial monolayers stimulated with serum or vascular growth factors produced invasive mesenchyme in collagen gels. Chick epicardial cells labeledin ovowith DiI invaded the subepicardial extracellular matrix, demonstrating that mesenchymal transformation of epicardium occursin vivo.To determine the fates of epicardially derived mesenchymal cells, quail epicardial cells labeledin vitrowithLacZwere grafted into the pericardial space of E2 chicks. These cells attached to the heart, formed a chimeric epicardium, invaded the subepicardial matrix and myocardial wall, and became coronary vascular smooth muscle, perivascular fibroblasts, and intermyocardial fibroblasts, demonstrating the common epicardial origin of these cell types. A general model of coronary vascular development should now include epicardial–mesenchymal transformation and direct participation of mesenchyme derived from the epicardium in coronary morphogenesis.