ABSTRACT Bone as well as tendons each contain stem cell populations embedded in type I collagen-rich tissues. Bone marrow and endosteal-derived stem cells generate bone via endochondral ossification while periosteal stem cells form bone via the intramembranous route. In turn, tendon stem cells give rise to tenocytes that populate the mature tissues. Recent studies have identified the cysteine proteinase, cathepsin K (CTSK), as a unique marker of periosteal stem cells, a finding we have confirmed, but that also led to our identification of a heretofore uncharacterized second stem population associated with tendons. In bone marrow-derived MSCs, we have previously identified a novel requirement for the membrane-anchored metalloproteinase, MT1-MMP, in regulating a mechanosensitive, YAP/TAZ-dependent pathway that controls stem cell lineage commitment via the proteolytic remodeling of the pericellular collagen matrix. By contrast, the relative roles of MT1-MMP and CTSK in periosteal or tendon/ligament stem cells are unknown. Using a Ctsk-Cre transgenic line to target periosteal stem cells, we find that Mt1-mmp targeting alone elicits a profound osteopenic state in vivo that not only operates independently of Ctsk, but also redirects the stem cells to an aberrant hyperproliferative, chondrogenic state. Further, and unexpectedly, Ctsk-Cre–dependent targeting of MT1-MMP - but not Ctsk, disrupts tendon/ structure by altering a previously undescribed paratenon stem cell-tendon trafficking route. In vivo, MT1-MMP-null tendon stem cells commit to a hyperproliferative, chondrogenic phenotype similar to that observed following tendon/ligament trauma. Based on these new data, we propose that MT1-MMP controls each of these stem cell populations by regulating a mechanotransduction pathway that not only controls YAP/TAZ-linked co-transcriptional programs, but also canonical TFGβ signaling pathways via the proteolytic shedding of the accessory TGFβ receptor, TGFβRIII. Together, these findings outline a new model of MSC function wherein MT1-MMP-dependent collagenolysis and receptor shedding together play a required role in periosteal tissues and tendons. As such, we propose 3 aims; i) characterize the role of MT1-MMP in regulating periosteal stem cell differentiation and function in vitro and in vivo, ii) define a novel role for Ctsk+ tendon stem cells in controlling tendon function and its regulation by MT1-MMP and iii) delineate the impact of MT1-MMP on periosteal/paratenon stem cell YAP/TAZ mechanotransduction and TGFβ/TGFβRIII- dependent differentiation programs. Together, these aims should cast new light on a family of specialized stem cells that require MT1- MMP-dependent proteolysis to not only regulate intramembranous bone formation, but also tendon structure/function as well.