Development of a vascular system involves the assembly of two principal cell types – endothelial cells and vascular smooth muscle cells/pericytes (vSMC/PC) – into many different types of blood vessels. Most, if not all, vessels begin as endothelial tubes that subsequently acquire a vSMC/PC coating. We have previously shown that PDGF-B is critically involved in the recruitment of pericytes to brain capillaries and to the kidney glomerular capillary tuft. Here, we used desmin and α-smooth muscle actin (ASMA) as markers to analyze vSMC/PC development in PDGF-B^−/− and PDGFR-β^−/− embryos. Both mutants showed a site-specific reduction of desmin-positive pericytes and ASMA-positive vSMC. We found that endothelial expression of PDGF-B was restricted to immature capillary endothelial cells and to the endothelium of growing arteries. BrdU labeling showed that PDGFR-β-positive vSMC/PC progenitors normally proliferate at sites of endothelial PDGF-B expression. In PDGF-B^−/− embryos, limb arterial vSMC showed a reduced BrdU-labeling index. This suggests a role of PDGF-B in vSMC/PC cell proliferation during vascular growth. Two modes of vSMC recruitment to newly formed vessels have previously been suggested: (1) de novo formation of vSMC by induction of undifferentiated perivascular mesenchymal cells, and (2) co-migration of vSMC from a preexisting pool of vSMC. Our data support both modes of vSMC/PC development and lead to a model in which PDGFR-β-positive vSMC/PC progenitors initially form around certain vessels by PDGF-B-independent induction. Subsequent angiogenic sprouting and vessel enlargement involves PDGF-B-dependent vSMC/PC progenitor co-migration and proliferation, and/or PDGF-B-independent new induction of vSMC/PC, depending on tissue context.