Trophic factors secreted both from the endocardium and epicardium regulate appropriate growth of the myocardium during cardiac development. Epicardially-derived cells play also a key role in development of the coronary vasculature. This process involves transformation of epithelial (epicardial) cells to mesenchymal cells (EMT). Similarly, a subset of endocardial cells undergoes EMT to form the mesenchyme of endocardial cushions, which function as primordia for developing valves and septa. While it has been suggested that transforming growth factor-betas (Tgf-beta) play an important role in induction of EMT in the avian epi- and endocardium, the function of Tgf-betas in corresponding mammalian tissues is still poorly understood. In this study, we have ablated the Tgf-beta type I receptor Alk5 in endo-, myo- and epicardial lineages using the Tie2-Cre, Nkx2.5-Cre, and Gata5-Cre driver lines, respectively. We show that while Alk5-mediated signaling does not play a major role in the myocardium during mouse cardiac development, it is critically important in the endocardium for induction of EMT both in vitro and in vivo. Moreover, loss of epicardial Alk5-mediated signaling leads to disruption of cell-cell interactions between the epicardium and myocardium resulting in a thinned myocardium. Furthermore, epicardial cells lacking Alk5 fail to undergo Tgf-beta-induced EMT in vitro. Late term mutant embryos lacking epicardial Alk5 display defective formation of a smooth muscle cell layer around coronary arteries, and aberrant formation of capillary vessels in the myocardium suggesting that Alk5 is controlling vascular homeostasis during cardiogenesis. To conclude, Tgf-beta signaling via Alk5 is not required in myocardial cells during mammalian cardiac development, but plays an irreplaceable cell-autonomous role regulating cellular communication, differentiation and proliferation in endocardial and epicardial cells.