Skin-derived precursors (SKPs) are multipotent dermal precursors that share similarities with neural crest stem cells and that can give rise to peripheral neural and some mesodermal cell types, such as adipocytes. Here, we have asked whether rodent or human SKPs can generate other mesenchymally derived cell types, with a particular focus on osteocytes and chondrocytes. In culture, rodent and human foreskin-derived SKPs differentiated into alkaline-positive, collagen type-1-positive, mineralizing osteocytes, and into collagen type-II-positive chondrocytes that secreted chondrocyte-specific proteoglycans. Clonal analysis demonstrated that SKPs efficiently generated these skeletogenic cell types, and that they were multipotent with regard to the osteogenic and chondrogenic lineages. To ask if SKPs could generate these same lineages in vivo, genetically tagged, undifferentiated rat SKPs were transplanted into a tibial bone fracture model. Over the ensuing 6 weeks, many of the transplanted cells survived within the bone callus, where they were morphologically and phenotypically similar to the endogenous mesenchymal/osteogenic cells. Moreover, some transplanted cells adopted a mature osteocyte phenotype and integrated into the newly formed bone. Some transplanted cells also differentiated into chondrocytes and into smooth muscle cells and/or pericytes that were associated with blood vessels. Thus, both rodent and human SKPs generate skeletogenic cell types in culture, and the injured bone environment is sufficient to instruct SKPs to differentiate down an osteogenic lineage, in a fashion similar to the endogenous mesenchymal precursors.