Skeletal stem and progenitor populations provide a platform for cell-based tissue regeneration strategies. Optimized conditions for ex vivo expansion will be critical and use of serum-free culture may allow enhanced modelling of differentiation potential. Maintenance of human foetal femur-derived cells in a chemically defined medium (CDM) with activin A and fibroblast growth factor-2 generated a unique undifferentiated cell population in comparison to basal cultures, with significantly reduced amino acid depletion, appearance and turnover, reduced alkaline phosphatase (ALP) activity and loss of type I and II collagen expression demonstrated by fluorescence immunocytochemistry. Microarray analysis demonstrated up-regulation of CLU, OSR2, POSTN and RABGAP1 and down-regulation of differentiation-associated genes CRYAB, CSRP1, EPAS1, GREM1, MT1X and SRGN as validated by quantitative real-time polymerase chain reaction. Application of osteogenic conditions to CDM cultures demonstrated partial rescue of ALP activity. In contrast, the addition of bone morphogenetic protein-2 (BMP-2) resulted in reduced ALP levels, increased amino acid metabolism and, strikingly, a marked shift to a cobblestone-like cellular morphology, with expression of SOX-2 and SOX-9 but not STRO-1 as shown by immunocytochemistry, and significantly altered expression of metabolic genes (GFPT2, SC4MOL and SQLE), genes involved in morphogenesis (SOX15 and WIF1) and differentiation potential (C1orf19, CHSY-2,DUSP6, HMGCS1 and PPL). These studies demonstrate the use of an intermediary foetal cellular model for differentiation studies in chemically defined conditions and indicate the in vitro reconstruction of the mesenchymal condensation phenotype in the presence of BMP-2, with implications therein for rescue studies, screening assays and skeletal regeneration research.