The regulation of progenitor cell differentiation to a specific tissue type is one of the fundamental questions of biology. Here, we identify Osr1 and Osr2, 2 closely related genes encoding zinc finger transcription factors, as being strongly expressed in irregular connective tissue (ICT) fibroblasts in the chicken embryo, suitable as a developmental marker. We provide evidence that both Osr1 and Osr2 regulate mesenchymal cell-type differentiation. Both Osr1 and Osr2 can promote the formation of ICT, a cell type of so far unknown molecular specification, while suppressing differentiation of other tissues such as cartilage and tendon from uncommitted progenitors. Conversely, knockdown of either Osr gene alone or in combination reverses this effect, thereby leading to decreased differentiation of ICT fibroblasts and increased chondrogenesis in vitro. This indicates that Osr genes play a pivotal role in ICT fibroblast differentiation. Undifferentiated mesenchymal cells reside in the adult body in the form of mesenchymal stem cells in the bone marrow cavity. Using bone marrow stromal cells (BMSCs) isolated from chicken fetal long bones, we show that Osr1 and Osr2 have an intrinsic role in BMSC differentiation similar to their role in early embryonic development, that is, the enforcement of CT fibroblast differentiation and the repression of other cell types as exemplified here by osteoblast differentiation.