The avian iris and ciliary body undergoes a transition from smooth-to-striated muscle during embryonic development. Using antibodies specific for smooth muscle-specific alpha-actin and myosin heavy chain, we confirm that a smooth-to-striated muscle transition occurs between E8 and E17 in both iris and ciliary body of the chick. To study the mechanisms regulating the transition in muscle type, we analyzed the fate of quail clones derived from E7 iris cells. When cells were cloned alone, 45/71 colonies differentiated into smooth muscle and 10/71 became striated muscle. None of the colonies were mixed with respect to muscle phenotype, indicating a lack of pluripotent stem cells. Furthermore, clones giving rise to nonstriated muscle could not be forced to incorporate into myotubes when cocultured with chick myocytes. Clones grown in coculture with chick embryo fibroblasts or E11 iris cells had very high cloning efficiencies (>98%). Significantly more clones differentiated into striated muscle when cocultured with E11 cells (60/156) than when cocultured with fibroblasts (29/108). This was due to an increased recruitment of undifferentiated cells into striated muscle, rather than a change in the percentage of cells differentiating into smooth muscle. In vivo and in vitro, various smooth and striated muscle-specific markers including contractile proteins, acetylcholine receptor subtypes, and transcription factors were colocalized in cells. Although our data argue against a multipotent stem cell for smooth and striated muscle cells, they cannot exclude a role for transdifferentiation. Cumulatively these results suggest that both smooth muscle and migratory myoblasts contribute to the development of myotubes in the avian iris and that this process is regulated in a non-cell-autonomous fashion by locally generated signals.