NADPH oxidase (Nox4) produces reactive oxygen species (ROS) that are important for vascular smooth muscle cell (SMC) behavior, but the potential impact of Nox4 in stem cell differentiation is unknown. When Mouse ES cells were plated on collagen IV-coated dishes/flasks, a panel of SMC-specific genes was significantly and consistently upregulated. Nox4 expression was markedly correlated with such a gene induction as confirmed by real-time PCR, immunofluorescence and Western blot analysis. Overexpression of Nox4 specifically resulted in increased SMC marker production, while knockdown of Nox4 induced a decrease. Furthermore, SMC-specific transcription factors, including serum response factor (SRF) and myocardin were activated by Nox4 gene expression. Moreover, Nox4 was demonstrated to drive SMC differentiation through generation of hydrogen peroxide (H₂O₂). Confocal microscopy analysis indicates that SRF was translocated into the nucleus during SMC differentiation, in which SRF was phosphorylated. Additionally, auto-secreted TGF-1 activated Nox4 and promoted SMC differentiation. Interestingly, cell lines generated from stem cells by Nox4 transfection and G418 selection displayed a characteristic of mature SMCs, including expression of SMC markers and cells with contractile function. Thus, we demonstrate for the first time that Nox4 is crucial for SMC differentiation from embryonic stem cells, and enforced Nox4 expression can maintain differentiation status and functional features of stem cell-derived SMCs, highlighting its impact on vessel formation in vivo and vascular tissue engineering in the future.