Hemangioma is a benign tumor of infancy whose hallmark is rapid growth during the first year of life followed by slow regression during early childhood. The proliferating phase is characterized by abundant immature endothelial cells, the involuting phase by prominent endothelial-lined vascular channels and endothelial apoptosis, and the involuted phase by few remaining capillary-like vessels surrounded by loose fibrofatty tissue. Nothing is known about the mechanisms that contribute to the adipogenesis during this spontaneous regression. We postulated that mesenchymal stem cells (MSCs) reside in the tumor and preferentially differentiate into adipocytes. To test this hypothesis, we isolated MSCs from 14 proliferating and five involuting hemangiomas by taking advantage of the well known selective adhesion of MSCs to bacteriologic dishes. These hemangioma-derived MSCs (Hem-MSCs) are similar to MSCs obtained from human bone marrow, expressing the cell surface markers SH2 (CD105), SH3, SH4, CD90, CD29, smooth muscle alpha-actin, and CD133 but not the hematopoietic markers CD45 and CD14 or the hematopoietic/endothelial markers CD34, CD31, and kinase insert domain receptor (KDR). Hem-MSCs exhibited multilineage differentiation with robust adipogenic potential that correlated with the proliferating phase. The numbers of adipogenic Hem-MSCs were higher in proliferating-phase than in involuting-phase tumors and higher than in normal infantile skin. Furthermore, Hem-MSCs exhibited a random pattern of X-chromosomal inactivation, indicating that these cells are not clonally derived. In summary, we have identified MSCs as a novel cellular constituent in infantile hemangioma. These MSCs may contribute to the adipogenesis during hemangioma involution.