Most organs and tissues in the body, including bone, can repair after an injury due to the activation of endogenous adult stem/progenitor cells to replace the damaged tissue . Inherent dysfunctions of the endogenous stem/progenitor cells in skeletal repair disorders are still poorly understood . Here, we report that Fgfr3 over-activating mutation in Prx1-derived skeletal stem/progenitor cells leads to failure of fracture consolidation . We show that periosteal cells (PCs) carrying the Fgfr3 mutation can engage in osteogenic and chondrogenic lineages, but following transplantation do not undergo terminal chondrocyte hypertrophy and transformation into bone causing pseudarthrosis . Instead, Prx1; Fgfr3 PCs give rise to fibrocartilage and fibrosis . Conversely, wild-type PCs transplanted at the fracture site of Prx1; Fgfr3 mice allow hypertrophic cartilage transition to bone and permit fracture consolidation . The results thus highlight cartilage-to-bone transformation as a necessary step for bone repair and FGFR3 signaling within PCs as a key regulator of this transformation.