We have isolated mesenchymal stem cells (MSCs) from tracheal aspirates of premature infants with respiratory distress. We examined the capacity of MSCs to differentiate into myofibroblasts, cells that participate in lung development, injury, and repair. Gene expression was measured by array, qPCR, immunoblot, and immunocytochemistry. Unstimulated MSCs expressed mRNAs encoding contractile (e.g., ACTA2, TAGLN), extracellular matrix (COL1A1 and ELN), and actin-binding (DBN1, PXN) proteins, consistent with a myofibroblast phenotype, although there was little translation into immunoreactive protein. Incubation in serum-free medium increased contractile protein (ACTA2, MYH11) gene expression. MSC-conditioned medium showed substantial levels of TGF-beta1, and treatment of serum-deprived cells with a type I activin receptor-like kinase inhibitor, SB-431542, attenuated the expression of genes encoding contractile and extracellular matrix proteins. Treatment of MSCs with TGF-beta1 further induced the expression of mRNAs encoding contractile (ACTA2, MYH11, TAGLN, DES) and extracellular matrix proteins (FN1, ELN, COL1A1, COL1A2), and increased the protein expression of alpha-smooth muscle actin, myosin heavy chain, and SM22. In contrast, human bone marrow-derived MSCs failed to undergo TGF-beta1-induced myofibroblastic differentiation. Finally, primary cells from tracheal aspirates behaved in an identical manner as later passage cells. We conclude that human neonatal lung MSCs demonstrate an mRNA expression pattern characteristic of myofibroblast progenitor cells. Autocrine production of TGF-beta1 further drives myofibroblastic differentiation, suggesting that, in the absence of other signals, fibrosis represents the "default program" for neonatal lung MSC gene expression. These data are consistent with the notion that MSCs play a key role in neonatal lung injury and repair.