Expression of the polyoma virus middle T (mT) oncogene in vivo is associated with a profound subversion of normal vascular development, which results in the formation of endothelial tumors (hemangiomas). In an attempt to understand the molecular mechanisms responsible for this phenomenon, we have investigated, in an in vitro system, the morphogenetic properties of endothelial cells expressing this oncogene. mT-expressing endothelioma (End) cells grown within fibrin gels formed large hemangioma-like cystic structures. All End cell lines examined expressed high levels of fibrinolytic activity resulting from increased production of urokinase-type plasminogen activator and decreased production of plasminogen activator inhibitors. Neutralization of excess proteolytic activity by exogenously added serine protease inhibitors corrected the aberrant in vitro behavior of End cells and allowed the formation of capillary-like tubules. These results suggest that tightly controlled proteolytic activity is essential for vascular morphogenesis and that physiological protease inhibitors play an important regulatory role in angiogenesis.