Thalidomide is well known to exert anti-angiogenic properties and causes cardiovascular malformations in human embryos. In the present study the effects of thalidomide on cardiovascular differentiation were investigated in mouse embryonic stem (ES) cell-derived embryoid bodies which differentiate cardiac and vascular cells. Thalidomide dose-dependent inhibited the formation of capillary-like vessels in embryoid bodies and decreased tumour-induced angiogenesis in confrontation cultures of embryoid bodies and multicellular tumour spheroids. In contrast thalidomide enhanced cardiomyogenesis of ES cells. Interestingly, thalidomide did not impair the number of CD31-positive cells as evaluated by fluorescence-activated cell sorting, suggesting that the compound acted on vascular tube formation and endothelial cell migration rather than endothelial cell differentiation. Upon thalidomide treatment an increase in reactive oxygen species generation (ROS) was observed which was abolished in the presence of the NADPH oxidase inhibitor VAS2870. In parallel thalidomide downregulated nitric oxide generation and decreased endothelial NO synthase activity. Upon coadministration of VAS2870 and thalidomide the stimulation of cardiomyogenesis was abolished, whereas inhibition of vasculogenesis persisted. In summary our data suggest that thalidomide causes an imbalance of ROS/NO generation thus impairing cardiovascular differentiation of ES cells.