Although soluble factors (e.g. Transform Growth Factor beta 1 (TGF-β1)) induced mesenchymal stem cell (MSC) differentiation toward smooth muscle (SMC) lineage, the role of adherent junctions in this process is not well understood. We found that Cadherin-11 but not Cadherin-2 was necessary for MSC differentiation into SMC. Cadherin-11 regulated expression of TGF-β1 and affected SMC differentiation through a TGF-β receptor II (TGFβRII) dependent but Smad2/3 independent pathway. In addition, Cadherin-11 activated the serum response factor (SRF) and SMC proteins via the Rho-associated protein kinase (ROCK) pathway. Engagement of Cadherin-11 increased its own expression through SRF, suggesting the presence of an auto regulatory feedback loop that committed MSC to SMC fate. Notably, SMC-containing tissues such as aorta and bladder from Cadherin-11 null mice (Cdh11−/−) mice showed significantly reduced levels of SMC proteins and exhibited diminished contractility. This is the first report implicating Cadherin-11 in SMC differentiation and contractile function in vitro as well as in vivo.