Neural crest (NC) cells originate from the neural folds and migrate into the various embryonic regions where they differentiate into multiple cell types. A population of cephalic neural crest-derived cells (NCDCs) penetrates back into the developing forebrain to differentiate into microvascular pericytes, but little is known about when and how cephalic NCDCs invade the telencephalon and differentiate into pericytes. Using a transgenic mouse line in which NCDCs are genetically labeled with enhanced green fluorescent protein (EGFP), we observed that NCDCs started to invade the telencephalon together with endothelial cells from embryonic day (E) 9.5. A majority of NCDCs located in the telencephalon expressed pericyte markers, that is, PDGFR beta and NG2, and differentiated into pericytes around E11.5. Surprisingly, many of the NC-derived pericytes express p75, an undifferentiated NCDC marker at E11.5, as well as NCDCs in the mesenchyme. At the same time, a minor population of NCDCs that located separately from blood vessels in the telencephalon were NG2-negative and some of these NCDCs also expressed p75. Proliferation and differentiation of pericytes appeared to occur in a specific mesenchymal region where blood vessels penetrated into the telencephalon. These results indicate that (i) NCDCs penetrate back into the telencephalon in parallel with angiogenesis, (ii) many NC-derived pericytes may be still in pre-mature states even though after differentiation into pericytes in the early developing stages, (iii) a small minority of NCDCs may retain undifferentiated states in the developing telencephalon, and (iv) a majority of NCDCs proliferate and differentiate into pericytes in the mesenchyme around the telencephalon.