Bone regeneration involves skeletal stem/progenitor cells (SSPCs) recruited from bone marrow, periosteum, and adjacent skeletal muscle. To achieve bone reconstitution after injury, a coordinated cellular and molecular response is required from these cell populations. Here, we show that SSPCs from periosteum and skeletal muscle are enriched in osteochondral progenitors, and more efficiently contribute to endochondral ossification during fracture repair as compared to bone-marrow stromal cells. Single-cell RNA sequencing (RNAseq) analyses of periosteal cells reveal the cellular heterogeneity of periosteum at steady state and in response to bone fracture. Upon fracture, both periosteal and skeletal muscle SSPCs transition from a stem/progenitor to a fibrogenic state prior to chondrogenesis. This common activation pattern in periosteum and skeletal muscle SSPCs is mediated by bone morphogenetic protein (BMP) signaling. Functionally, Bmpr1a gene inactivation in platelet-derived growth factor receptor alpha (Pdgfra)-derived SSPCs impairs bone healing and decreases SSPC proliferation, migration, and osteochondral differentiation. These results uncover a coordinated molecular program driving SSPC activation in periosteum and skeletal muscle toward endochondral ossification during bone regeneration.