Smooth muscle cells play a major role in numerous vascular diseases that contribute to remodeling, repair after injury, and arteriogenesis, and the source of these cells is thought to lie within the vessel wall and the circulating blood. Currently, the precise origin and mechanism of differentiation of extravascular smooth muscle progenitor cells (SPCs) is unclear. We show here that the CX(3)CR1 mononuclear cell population of murine bone marrow provides a source of SPCs that contributes to smooth muscle cells within the neointimal plaque after vascular injury. Moreover, CX(3)CR1-fractalkine (FKN) interaction in vivo is essential for smooth muscle cell differentiation of bone marrow-derived progenitor cells at the vessel wall level. Functional competence of bone marrow-derived CX(3)CR1 positive cells to interact with FKN is also crucial in part for neointima formation following vascular injury. Finally, in a pure preparation of bone marrow-derived CX(3)CR1 positive cells, we show that in vitro smooth muscle cell differentiation increases markedly in the presence of FKN. Our data highlight a novel functional relationship between the myeloid and vascular systems and in the context of vascular injury and repair underscores a key chemokine-receptor pathway that may regulate cell fate when smooth muscle cell differentiation is required.