The repair of extensive bone injuries remains an unmet clinical challenge. By developing two new and complementary models of large-scale bone regeneration in zebrafish and mouse, we aim to understand the role of the cartilage callus in generating large segments of full thickness bone. While the periosteum generates osteoblasts during homeostasis, the specific subpopulation that builds the repair callus remains poorly defined. Using transgenic lineage tracing, we provide compelling preliminary evidence that a rare bi-potent Sox9+/Runx2+ periosteal population generates new cartilage and bone during repair. This newfound ability to label, manipulate, and isolate a specific stem cell population allows us to test whether the remarkable regenerative capacity of the rib is due to the unique properties of its periosteal stem cells. In Aim 1, we team up with an orthopaedic surgeon to test that Sox9+ cells from the rib periosteum can be expanded in culture and used to heal a critical-sized femoral defect. The formation of a cartilage callus is a common feature in bone repair, yet how the periosteum generates cartilage only during repair remains a mystery. In preliminary data, we find that the cartilage callus is severely compromised when either the Ihha ligand is deleted in zebrafish or the Hh receptor Smo is deleted from Sox9+ cells in mice. In Aim 2, we test that this reflects a repair-specific role for Ihh, which is markedly different from its developmental role in osteoblast differentiation and chondrocyte proliferation. Further, our preliminary data suggest that these Ihh-induced repair chondrocytes differ in important ways from those in the growth plate since repair chondrocytes co-express osteoblast genes even at pre-hypertrophic stages. This increase in osteogenic character subsequently correlates with a conversion of chondrocytes into osteocytes. In Aim 3, we test whether repair and developmental chondrocytes represent distinct cell types by comparing global gene expression at different stages of maturation. We also use lineage tracing to quantitate the extent to which cartilage-derived osteocytes preferentially contribute to full thickness bone during repair. Lastly, we use powerful new chromatin accessibility assays to test that as Sox9+ periosteal cells become cartilage, their greater osteogenic character results from the maintenance of poised osteoblast enhancers. Our findings will reveal how a rare population of periosteal stem cells can be induced to make cartilage during injury, and how this specialized repair cartilage can be used to regenerate full thickness bone. A better understanding of these important stem cells will form the basis of future pre- clinical trials aimed at healing large-scale skeletal lesions in other parts of the body.