Although recent lineage studies strongly support a chondrocyte-to-osteoblast differentiation continuum, the biological significance and molecular basis remain undetermined. In silico analysis at a single-cell level indicates a transient shutdown of Hedgehog-related transcriptome during simulated cartilage-to-bone transition. Prompted by this, we genetically induce gain- and loss-of function to probe the role of Hedgehog signaling in cartilage-to-bone transition. Ablating Smo in hypertrophic chondrocytes (HCs) does not result in any phenotypic outcome, whereas deleting Ptch1 in HCs leads to disrupted formation of primary spongiosa and actively proliferating HCs-derived osteogenic cells that contribute to bony bulges seen in adult mutant mice. In HCs-derived osteoblasts, constitutive activation of Hedgehog signaling blocks their further differentiation to osteocytes. Moreover, ablation of both Smo and Ptch1 in HCs reverses neither persistent Hedgehog signaling nor bone overgrowths. These results establish a functional contribution of extended chondrocyte lineage to bone homeostasis and diseases, governed by an unanticipated mode of regulation for Hedgehog signaling independently of Smo. Keywords: Bone overgrowths; Cartilage-to-bone transition; Hedgehog signaling; Lineage tracing; Osteodifferentiation.