Circulating endothelial progenitor cells (EPCs) are incorporated into foci of neovascularization where they undergo differentiation to mature endothelial cells (ECs). We show here that the enzyme sphingosine kinase-1 (SK-1) regulates the rate and direction of EPC differentiation without effect on the hematopoietic compartment. EPCs have high levels of SK-1 activity, which diminishes with differentiation and is, at least partially, responsible for maintaining their EPC phenotype. EPCs from SK-1 knockout mice form more adherent EC units and acquire a mature EC phenotype more rapidly. Conversely, EPCs from mice overexpressing SK-1 in the EC compartment are retarded in their differentiation. Exogenous regulation of SK-1 levels in normal EPCs, by genetic and pharmacologic means, including the immunomodulating drug FTY720, recapitulates these effects on EC differentiation. SK-1 knockout mice have higher levels of circulating EPCs, an exaggerated response to erythropoietin-induced EPC mobilization, and, in a mouse model of kidney ischemia reperfusion injury, exhibit a recovery similar to that of ischemic mice administered exogenous EPCs. Thus, SK-1 is a critical player in EPC differentiation into EC pointing to the potential utility of SK-1 modifying agents in the specific manipulation of endothelial development and repair.