Mesenchymal stem cells (MSCs) hold tremendous potential for vascular tissue regeneration. Research has demonstrated that individual factors in the cell microenvironment such as matrix elasticity and growth factors regulate MSC differentiation to vascular lineage. However, it is not well understood how matrix elasticity and growth factors combine to direct the MSC fate. This study examines the combined effects of matrix elasticity and vascular endothelial growth factor (VEGF) on both MSC differentiation into endothelial lineage and MSC paracrine signaling. MSCs were seeded in soft nanofibrous matrices with or without VEGF, and in Petri dishes with or without VEGF. Only MSCs seeded in three-dimensional soft matrices with VEGF showed significant increases in the expression of endothelialmarkers (vWF, eNOS, Flt-1, and Flk-1), while eliminating the expression of smooth musclemarker (SM-alpha- actin). MSCs cultured in VEGF alone on two-dimensional dishes showed increased expression of both early-stage endothelial and smooth muscle markers, indicating immature vascular differentiation. Furthermore, MSCs cultured in soft matrices with VEGF showed faster upregulation of endothelial markers compared with MSCs cultured in VEGF alone. Paracrine signaling studies found that endothelial cells cultured in the conditioned media from MSCs differentiated in the soft matrix and VEGF condition exhibited increased migration and formation of capillary-like structures. These results demonstrate that VEGF and soft matrix elasticity act synergistically to guide MSC differentiation into mature endothelial phenotype while enhancing paracrine signaling. Therefore, it is critical to control both mechanical and biochemical factors to safely regenerate vascular tissues with MSCs.