This review addresses fundamental mechanisms underlying how capillaries form in three-dimensional extracellular matrices and how endothelial cells (ECs) and pericytes co-assemble to form capillary networks. In addition to playing a critical role in supplying oxygen and nutrients to tissues, recent work suggests that blood vessels supply important signals to facilitate tissue development. Here, we hypothesize that another major function of capillaries is to supply signals to suppress major disease mechanisms including inflammation, infection, thrombosis, hemorrhage, edema, ischemic injury, fibrosis, autoimmune disease and tumor growth/progression. Capillary dysfunction plays a key pathogenic role in many human diseases, and thus, this suppressing function may be attenuated and central toward the initiation and progression of disease. We describe how capillaries form through creation of EC-lined tube networks and vascular guidance tunnels in 3D extracellular matrices. Pericytes recruit to the abluminal EC tube surface within these tunnel spaces, and work together to assemble the vascular basement membrane matrix. These processes occur under serum-free conditions in 3D collagen or fibrin matrices and in response to five key growth factors which are stem cell factor, interleukin-3, stromal-derived factor-1α, fibroblast growth factor-2 and insulin. In addition, we identified a key role for EC-derived platelet-derived growth factor-BB and heparin-binding epidermal growth factor in pericyte recruitment and proliferation to promote EC-pericyte tube co-assembly and vascular basement membrane matrix deposition. A molecular understanding of capillary morphogenesis and maturation should lead to novel therapeutic strategies to repair capillary dysfunction in major human disease contexts including cancer and diabetes.