Adult mesenchymal progenitor cells have enormous potential for use in regenerative medicine. However, the true identity of the progenitors in vivo and their progeny has not been precisely defined. We hypothesize that cells expressing a smooth muscle α-actin promoter (αSMA)-directed Cre transgene represent mesenchymal progenitors of adult bone tissue. By combining complementary colors in combination with transgenes activating at mature stages of the lineage, we characterized the phenotype and confirmed the ability of isolated αSMA+ cells to progress from a progenitor to fully mature state. In vivo lineage tracing experiments using a new bone formation model confirmed the osteogenic phenotype of αSMA+ cells. In vitro analysis of the in vivo-labeled SMA9+ cells supported their differentiation potential into mesenchymal lineages. Using a fracture-healing model, αSMA9+ cells served as a pool of fibrocartilage and skeletal progenitors. Confirmation of the transition of αSMA9+ progenitor cells to mature osteoblasts during fracture healing was assessed by activation of bone-specific Col2.3emd transgene. Our findings provide a novel in vivo identification of defined population of mesenchymal progenitor cells with active role in bone remodeling and regeneration. STEM CELLS 2012; 30:187–196.