Angiotensin-converting enzyme 2 (ACE2) is a newly discovered homolog of ACE whose actions oppose those of angiotensin II (AngII). However, the underlying mechanisms by which ACE2 effectively suppresses early atherosclerotic lesions remain poorly understood. Here, we show, both in vitro and in vivo, that ACE2 inhibited the development of early atherosclerotic lesions by suppressing the growth of vascular smooth muscle cells (VSMCs) and improving endothelial function. In a relatively large cohort animal study (66 rabbits), aortic segments transfected by Ad-ACE2 showed significantly attenuated fatty streak formation, neointimal macrophage infiltration, and alleviation of impaired endothelial function. Segments also showed decreased expression of monocyte chemoattractant protein 1, lectin-like oxidized low-density lipoprotein receptor 1, and proliferating cell nuclear antigen, which led to the delayed onset of atherosclerotic lesions. At the cellular level, ACE2 significantly modulated AngII-induced growth and migration in human umbilical vein endothelial cells and VSMCs. The antiatherosclerotic effect of ACE2 involved down-regulation of the ERK-p38, JAK-STAT, and AngII-ROS-NF-κB signaling pathways and upregulation of the PI3K-Akt pathway. These findings revealed the molecular mechanisms of the antiatherosclerotic activity of ACE2 and suggested that modulation of ACE2 could offer a therapeutic option for treating atherosclerosis.