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Abstract Mesenchymal stem cells (MSCs) and osteolineage cells contribute to the hematopoietic stem cell (HSC) niche in the bone marrow of long bones. However, their developmental relationships remain unclear. In this study, we demonstrate that different MSC populations in the developing marrow of long bones have distinct functions. Proliferative mesoderm-derived nestin− MSCs participate in fetal skeletogenesis and lose MSC activity soon after birth. In contrast, quiescent neural crest-derived nestin+ cells preserve MSC activity, but do not generate fetal chondrocytes. Instead, they differentiate into HSC niche-forming MSCs, helping to establish the HSC niche by secreting Cxcl12. Perineural migration of these cells to the bone marrow requires the ErbB3 receptor. The neonatal Nestin-GFP+ Pdgfrα− cell population…