We report an efficient method for the directed differentiation of mesenchymal stromal cells derived from embryonic stem cells (EMSCs) into functional endothelial cells (EC), addressing the challenges of direct conversion, such as cellular senescence. We found that transduction of one transcription factor, ER71, was required for the efficient derivation of induced endothelial cells from EMSCs (MiECs). Addition of transforming growth factor-β inhibitor (SB431542), vascular endothelial growth factor, and ascorbic acid to the culture media enhanced the differentiation efficiency. After one week of the induction protocol, 75.4 ± 4.5 % of EMSCs were directly differentiated into ECs as defined by double-positivity for VE-cadherin/PECAM1. MiECs demonstrated endothelial characteristics and functions. Interestingly, the immune tolerance of MSCs was potentiated in MiECs, and were mediated by IKAROS, a direct transcriptional target of ER71. We established an efficient protocol for direct differentiation of MSCs into functional ECs with immune tolerance properties based on ER71 transduction. This technology provides the allogenic cell source for ready-to-use cell therapies for diseases or conditions requiring vascularization.