Chondrocytes and osteoblasts are two primary cell types in the skeletal system that are differentiated from common mesenchymal progenitors. It is believed that osteoblast differentiation is controlled by distinct mechanisms in intramembranous and endochondral ossification. We have found that ectopic canonical Wnt signaling leads to enhanced ossification and suppression of chondrocyte formation. Conversely, genetic inactivation of beta-catenin, an essential component transducing the canonical Wnt signaling, causes ectopic formation of chondrocytes at the expense of osteoblast differentiation during both intramembranous and endochondral ossification. Moreover, inactivation of beta-catenin in mesenchymal progenitor cells in vitro causes chondrocyte differentiation under conditions allowing only osteoblasts to form. Our results demonstrate that beta-catenin is essential in determining whether mesenchymal progenitors will become osteoblasts or chondrocytes regardless of regional locations or ossification mechanisms. Controlling Wnt/beta-catenin signaling is a common molecular mechanism underlying chondrocyte and osteoblast differentiation and specification of intramembranous and endochondral ossification.