We assessed the ability of muscle-derived stem cells (MDSC) to differentiate into smooth muscle cells (SMC) and their potential to promote the regeneration of smooth muscle with a vessel extracellular matrix (VECM) for tissue engineering of the ureter. MDSC were isolated, proliferated, and identified by flow cytometry. SMC phenotype differentiation was induced with a smooth muscle induction medium. Gene expression was evaluated by real-time quantitative polymerase chain reaction (PCR) and Western blot studies. The VECM was obtained by a decellularization process, and cytotoxic effects were evaluated by exposing the induced cells to a VECM extract. The induced cells were seeded onto VECM in vitro for 1 week, and then the compound grafts were used for ureter reconstitution in vivo. The grafts were obtained for histological studies at 2, 4, 8, and 16 weeks post-operation. Intravenous urography was used to evaluate renal function and ureteral patency. Flow cytometry demonstrated that the MDSC expressed Sca-1 and desmin, but did not express CD45. After induction, SMC phenotype gene expression was confirmed in the induced cells by real-time quantitative PCR and Western blot studies. VECM exhibited a nontoxic effect on the induced cells in vitro. At 16 weeks post-operation, a histological evaluation showed that multilayered urothelium and organized muscle fiber bundles had formed in the grafts. Intravenous urography demonstrated no evidence of ureteral stricture or hydroureteronephrosis. These results demonstrate that MDSC can be induced into SMC and that this was useful for promoting regeneration of smooth muscles for ureter tissue engineering.