Periosteum plays a key role in bone repair through activation of residing stem and/or progenitor cells. The molecular signals regulating differentiation and expansion of periosteal stem cells during early repair are poorly understood. Understanding the molecular basis for initiation and completion of bone healing is vital for the success of bone-tissue engineering and regeneration therapy for impaired bone healing. We established a live-bone-graft transplantation model that allows us to quantitatively evaluate the fate of the periosteal cells and cell-initiated endochondral bone healing with use of a transgenic and knockout mouse model. By combining this live-bone-graft transplantation method with a tamoxifen-inducible CreER-mediated gene recombination model (R26CreER), we developed a novel approach to efficiently delete genes in periosteal cells during the initiation of skeletal repair. This approach allows us to use floxed mice to examine the function of genes whose germline deletion results in lethality during development. Successful bone repair and regeneration therapies require a deeper understanding of the signals and signaling pathways that are critical for the morphogenesis of the repair tissues. Early lethality in genetically manipulated mice prohibits an understanding of the function of genes in the adult repair process. Our current approach overcomes this encumbrance and enables examination of gene function in a time-dependent and repair-tissue-specific manner.