<p>The bone marrow endosteum provides a robust source of bone-making osteoblasts by housing various types of osteoblast precursor cells, including endosteal stem cells expressing <i>fibroblast growth factor receptor 3</i> (<i>Fgfr3</i>) and their downstream progenitor cell populations. In fetal bone development, Dlx5 marks early perichondrial cells that populate the diaphyseal bone and marrow stroma in the postnatal stages. However, the location of Dlx5-expressing cells in the postnatal bone marrow and how they contribute to osteogenesis remain undefined. Here, we show that Dlx5⁺ cells are preferentially localized to the endosteal space in the postnatal bone marrow and provide a robust yet transient source of trabecular bone-making osteoblasts. Cell-lineage analyses by <i>Dlx5-creER</i> reveal that these Dlx5⁺ endosteal precursor cells robustly contribute to osteoblasts and reticular stromal cells, whereas cell type-specific Hedgehog activation by <i>Ptch1</i>-deletion prematurely shifted their cell fates toward marrow adipocytes, leading to cortical and trabecular bone thinning with spontaneous fractures. Therefore, our findings identify postnatal Dlx5⁺ cells as Hedgehog-susceptible osteoblast precursors, unraveling a new mechanism governing osteogenic fates of bone marrow endosteal precursor cells.</p>