Pluripotent embryonic stem cells (ESCs) generate rostral paraxial mesoderm-like progeny in 5-6 days of differentiation induced byWnt3a and Noggin (Nog). We report that canonical Wnt signaling introduced either by forced expression of activated ?-catenin, or thesmall-molecule inhibitor of Gsk3, CHIR99021, satisfied the need for Wnt3a signaling, and that the small-molecule inhibitor of BMP type I receptors, LDN193189, was able to replace Nog. Mesodermal progeny generated using such small molecules were chondrogenic in vitro, and expressed trunk paraxial mesoderm markers such as Tcf15 and Meox1, and somite markers such as Uncx, but failed to express sclerotome markers such as Pax1. Induction of the osteochondrogenically committed sclerotome from somite requires sonic hedgehog and Nog. Consistently, Pax1 and Bapx1 expression was induced when the isolated paraxial mesodermal progeny were treatedwithSAG1 (a hedgehog receptoragonist) andLDN193189, then Sox9 expression was induced, leading to cartilaginous nodules and particles in the presence of BMP, indicative of chondrogenesis via sclerotome specification. By contrast, treatment with TGF beta also supported chondrogenesis and stimulated Sox9 expression, but failed to induce the expression of Pax1 and Bapx1.On ectopic transplantation to immunocompromised mice, the cartilage particles developed under either condition became similarly mineralized and formed pieces of bone with marrow. Thus, the use of small molecules led to the effective generation from ESCs of paraxial mesodermal progeny, and to their further differentiation in vitro through sclerotome specification into growth plate-like chondrocytes, amechanismresembling in vivo somitic chondrogenesis that is not recapitulated with TGF beta .