<p>Tendon injury promotes aberrant osteochondral differentiation of tendon stem cells (TSCs) and results in disability. However, the cellular subsets within the osteochondral lineage involved in this process and associated mechanisms remain unclear. Here, we found that, following Achilles tenotomy, murine <i>Gli1</i>⁺ tendon sheath cells expanded rapidly, transitioning into tenogenic and osteochondrogenic cells. Lineage tracing, together with single-cell RNA sequencing, revealed that osteochondrogenic <i>Gli1</i>⁺ tendon sheath cells originate from Scx⁺ tendon stem/progenitor cells, preferentially differentiate into osteochondral lineage tendon progenitors at 7 dpi, subsequently undergoing aberrant chondrogenesis and osteogenesis at 21dpi and 63dpi, respectively. In addition, <i>Acvr1</i>^{<i>R206H/+</i>} robustly accelerates osteochondral differentiation in <i>Gli1</i>⁺ tendon sheath progenitors. Furthermore, GNAS/PKA signaling was significantly activated in osteochondral differentiation of <i>Gli1</i>⁺ tendon sheath progenitors. Alternatively, treatment with the G_sα antagonist, NF449, or genetic inhibition of the PKA subunit, <i>Prkaca</i>, in <i>Gli1</i>⁺ sheath progenitors significantly alleviated aberrant osteochondral differentiation. NF449 also prevented osteochondral differentiation of human tendon stem cells. These findings identify <i>Gli1</i>⁺ tendon sheath progenitors with osteochondral differentiation capacity during heterotopic ossification via activation of GNAS/PKA signaling, suggesting PKA as a potentially effective therapeutic target to treat tendon ossification.</p>