Histone deacetylases (HDACs) have a central role in the regulation of gene expression. Here we investigated whether HDAC7 has an impact on embryonic stem (ES) cell differentiation into smooth muscle cells (SMCs). ES cells were seeded on collagen-IV-coated flasks and cultured in the absence of leukemia inhibitory factor in differentiation medium to induce SMC differentiation. Western blots and double-immunofluorescence staining demonstrated that HDAC7 has a parallel expression pattern with SMC marker genes. In ex vivo culture of embryonic cells from SM22-LacZ transgenic mice, overexpression of HDAC7 significantly increased beta-galactosidase-positive cell numbers and enzyme activity, indicating its crucial role in SMC differentiation during embryonic development. We found that HDAC7 undergoes alternative splicing during ES cell differentiation. Platelet-derived growth factor enhanced ES cell differentiation into SMCs through upregulation of HDAC7 splicing. Further experiments revealed that HDAC7 splicing induced SMC differentiation through modulation of the SRF-myocardin complex. These findings suggest that HDAC7 splicing is important for SMC differentiation and vessel formation in embryonic development.