The increasing incidence of physiologic/pathologic conditions that impair the otherwise routine healing of endochondral bone fractures and the occurrence of severe bone injuries necessitate novel approaches to enhance clinically challenging bone fracture repair. To promote the healing of nonunion fractures, we tested an approach that used two small molecules to sequentially enhance cartilage development and conversion to the bone in the callus of a murine femoral segmental defect nonunion model of bone injury. Systemic injections of smoothened agonist 21k (SAG21k) were used to stimulate chondrogenesis through the activation of the sonic hedgehog (SHH) pathway early in bone repair, while injections of the prolyl hydroxylase domain (PHD)2 inhibitor, IOX2, were used to stimulate hypoxia signaling-mediated endochondral bone formation. The expression of SHH pathway genes and Phd2 target genes was increased in chondrocyte cell lines in response to SAG21k and IOX2 treatment, respectively. The segmental defect responded to sequential systemic administration of these small molecules with increased chondrocyte expression of PTCH1, GLI1, and SOX9 in response to SAG and increased expression of hypoxia-induced factor-1α and vascular endothelial growth factor-A in the defect tissues in response to IOX2. At 6 weeks postsurgery, the combined SAG–IOX2 therapy produced increased bone formation in the defect with the bony union over the injury. Clinical significance:​ This therapeutic approach was successful in promoting cartilage and bone formation within a critical-size segmental defect and established the utility of a sequential small molecule therapy for the enhancement of fracture callus development in clinically challenging bone injuries.