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Background: The biological mechanisms that contribute to atrophic long bone non-union are poorly understood. Multipotential mesenchymal stromal cells (MSCs) are key contributors to bone formation and are recognised as important mediators of blood vessel formation. This study examines the role of MSCs in tissue formation at the site of atrophic non-union. Materials and Methods: Tissue and MSCs from non-union sites (n = 20) and induced periosteal (IP) membrane formed following the Masquelet bone reconstruction technique (n = 15) or bone marrow (n = 8) were compared. MSC content, differentiation, and influence on angiogenesis were measured in vitro. Cell content and vasculature measurements were performed by flow cytometry and histology, and gene expression was measured by quantitative polymerase chain reaction (qPCR). Results: MSCs from non-union sites had comparable differentiation potential to bone marrow MSCs. Compared with induced periosteum, non-union tissue contained similar proportion of colony-forming cells, but a greater proportion of pericytes (p = 0.036), and endothelial cells (p = 0.016) and blood vessels were more numerous (p = 0.001) with smaller luminal diameter (p = 0.046). MSCs showed marked differences in angiogenic transcripts depending on the source, and those from induced periosteum, but not non-union tissue, inhibited early stages of in vitro angiogenesis. Conclusions: In vitro, non-union site derived MSCs have no impairment of differentiation capacity, but they differ from IP-derived MSCs in mediating angiogenesis. Local MSCs may thus be strongly implicated in the formation of the immature vascular network at the non-union site. Attention should be given to their angiogenic support profile when selecting MSCs for regenerative therapy. [ABSTRACT FROM AUTHOR]