Stem cells are often transplanted with scaffolds for tissue regeneration; however, how the mechanical property of a scaffold modulates stem cell fate in vivo is not well understood. Here we investigated how matrix stiffness modulates stem cell differentiation in a model of vascular graft transplantation. Multipotent neural crest stem cells (NCSCs) were differentiated from induced pluripotent stem cells, embedded in the hydrogel on the outer surface of nanofibrous polymer grafts, and implanted into rat carotid arteries by anastomosis. After 3 months, NCSCs differentiated into smooth muscle cells (SMCs) near the outer surface of the polymer grafts; in contrast, NCSCs differentiated into glial cells in the most part of the hydrogel. Atomic force microscopy demonstrated a stiffer matrix near the polymer surface but much lower stiffness away from the polymer graft. Consistently, in vitro studies confirmed that stiff surface induced SMC genes whereas soft surface induced glial genes. These results suggest that the scaffold's mechanical properties play an important role in directing stem cell differentiation in vivo, which has important implications in biomaterials design for stem cell delivery and tissue engineering.