Bone is regarded as one of few tissues that heals without fibrous scar. The outer layer of the periosteum is covered with fibrous tissue, whose function in bone formation is unknown. We herein developed a system to distinguish the fate of fibrous-layer periosteal cells (FL-PCs) from the skeletal stem/progenitor cells (SSPCs) in the cambium-layer periosteum and bone marrow in mice. We showed that FL-PCs did not participate in steady-state osteogenesis, but formed the main body of fibrocartilaginous callus during fracture healing. Moreover, FL-PCs invaded the cambium-layer periosteum and bone marrow after fracture, forming neo-SSPCs that continued to maintain the healed bones throughout adulthood. The FL-PC-derived neo-SSPCs expressed lower levels of osteogenic signature genes and displayed lower osteogenic differentiation activity than the preexisting SSPCs. Consistent with this, healed bones were thinner and formed more slowly than normal bones. Thus, the fibrous periosteum becomes the cellular origin of bones after fracture and alters bone properties permanently.