Multiple cell-cell interactions control bone morphogenesis and vascularization. We have employed a spheroidal coculture system of endothelial cells (EC) and osteoblasts (OB) to study cell contact-dependent gene regulation between these two cell types that may play a role in regulating OB differentiation and EC angiogenic properties. Coculture spheroids differentiate spontaneously to organize into a core of OB and a surface layer of endothelial cells. Individual spheroid culture of EC or OB leads to significant alterations in gene expression compared to standard monolayer culture (upregulation of Tie-2 in EC; upregulation of angiopoietin-2 in osteoblasts). More importantly, spheroidal coculture of endothelial cells and osteoblasts leads to significant changes of gene expression in both cell populations (upregulation of VEGFR-2 in EC; downregulation of VEGF, and upregulation of alkaline phosphatase in osteoblasts). These changes are dependent on cell-cell contact and are not seen in stimulation experiments with conditioned supernatants. Collectively, the data demonstrate complex bi-directional gene regulation mechanisms between EC and OB that are likely to play a critical role during OB differentiation and in controlling the properties of angiogenic EC.