Summary Our understanding of cell lineages is currently being challenged. Cell plasticity appears to be more prevalent than previously thought and cell fate switching, even among fully differentiated cells is being more fully uncovered and understood. For example, ‘paligenosis’ is an emerging concept whereby fully differentiated cells revert to a stem cell like state and give rise to a multitude of cell types in part due to mTOR signaling. These observations have important implications for bone fracture healing. Multiple differentiation events occur for the bone to heal. Initially, the mechanical environment directs cell fate decisions within the periosteum. Mechanical stability directs differentiation of osteoblasts and intramembranous ossification, while instability directs differentiation of chondrocytes and endochondral ossification. Concomitantly, the stem cell compartment is maintained, and a renewed stem cell pool will eventually populate the periosteum that covers the new bone. At later stages of endochondral ossification chondrocytes become osteoblasts as the cartilage transforms into bone. Disruptions to these distinct events can lead to delayed or failed healing, which is often associated with increased fibrosis of the fracture site. In this application we propose to examine the process of differentiation of periosteal cells in response to the mechanical environment (Aim1), to assess transformation of chondrocytes into osteoblasts (Aim 2), and maintenance of the stem cell pool and population of the newly formed periosteum by stem cells (Aim 3). This work utilizes a systems biology approach to examine molecular mechanisms that underlie these cell fate decisions, and in parallel a more standard hypothesis-based approach. We focus on the role of Nf1 and Sox2 during differentiation of periosteal cells and the transformation of chondrocytes into osteoblasts. Our preliminary data show that deletion of Nf1 from the developing periosteum leads to a fibrous non-union after fracture, and we focus on the role of mTOR in mediating these outcomes. Our data also show that Sox2 is necessary for endochondral ossification, and we test the requirement of Sox2 in hypertrophic chondrocytes for transformation to osteoblasts. Finally, we examine a role for Sox2 in maintaining the stem cell compartment in the periosteum using a set of loss-of-function experiments in serial fracture repair. In summary, combining a systems biology approach with hypothesis testing is a powerful way to develop deep understanding of the processes regulating cell differentiation during fracture healing.