This paper demonstrates a method to engineer, in vitro, a nascent microvasculature within a collagen-glycosaminoglycan scaffold with a view to overcoming the major issue of graft failure due to avascular necrosis of tissue-engineered constructs. Human umbilical vein endothelial cells (ECs) were cultured alone and in various co-culture combinations with human mesenchymal stem cells (MSCs) to determine their vasculogenic abilities in vitro. Results demonstrated that the delayed addition of MSCs to pre-formed EC networks, whereby MSCs act as pericytes to the nascent vessels, resulted in the best developed vasculature. The results also demonstrate that the crosstalk between ECs and MSCs during microvessel formation occurs in a highly regulated, spatio-temporal fashion, whereby the initial seeding of ECs results in platelet derived growth factor (PDGF) release; the subsequent addition of MSCs 3days later leads to a cessation in PDGF production, coinciding with increased vascular endothelial cell growth factor expression and enhanced vessel formation. Functional assessment of these pre-engineered constructs in a subcutaneous rat implant model demonstrated anastomosis between the in vitro engineered vessels and the host vasculature, with significantly increased vascularization occurring in the co-culture group. This study has thus provided new information on the process of in vitro vasculogenesis within a three-dimensional porous scaffold for tissue engineering and demonstrates the potential for using these vascularized scaffolds in the repair of critical sized bone defects.