Tumor angiogenesis is critical to tumor growth and metastasis, yet much is unknown about the role vascular cells play in the tumor microenvironment. In vitro models that mimic in vivo tumor neovascularization facilitate exploration of this role. Here we investigated lung adenocarcinoma cancer cells (344SQ) and endothelial and pericyte vascular cells encapsulated in cell-adhesive, proteolytically-degradable poly(ethylene) glycol-based hydrogels. 344SQ in hydrogels formed spheroids and secreted proangiogenic growth factors that significantly increased with exposure to transforming growth factor beta 1 (TGF-β1), a potent tumor progression-promoting factor. Vascular cells in hydrogels formed tubule networks with localized activated TGF-β1. To study cancer cell-vascular cell interactions, we engineered a 2-layer hydrogel with 344SQ and vascular cell layers. Large, invasive 344SQ clusters (area > 5,000 μm(2), circularity < 0.25) developed at the interface between the layers, and were not evident further from the interface or in control hydrogels without vascular cells. A modified model with spatially restricted 344SQ and vascular cell layers confirmed that observed cluster morphological changes required close proximity to vascular cells. Additionally, TGF-β1 inhibition blocked endothelial cell-driven 344SQ migration. Our findings suggest vascular cells contribute to tumor progression and establish this culture system as a platform for studying tumor vascularization.