Erythropoietin (EPO)/erythropoietin receptor (EPOR) signaling is involved in the development and regeneration of several non-hematopoietic tissues including the skeleton. EPO is identified as a downstream target of the hypoxia inducible factor-α (HIF-α) pathway. It is shown that EPO exerts a positive role in bone repair, however, the underlying cellular and molecular mechanisms remain unclear. In the present study we show that EPO and EPOR are expressed in the proliferating, pre-hypertrophic and hypertrophic zone of the developing mouse growth plates as well as in the cartilaginous callus of the healing bone. The proliferation rate of chondrocytes is increased under EPO treatment, while this effect is decreased following siRNA mediated knockdown of EPOR in chondrocytes. EPO treatment increases biosynthesis of proteoglycan, accompanied by up-regulation of chondrogenic marker genes including SOX9, SOX5, SOX6, collagen type 2, and aggrecan. The effects are inhibited by knockdown of EPOR. Blockage of the endogenous EPO in chondrocytes also impaired the chondrogenic differentiation. In addition, EPO promotes metatarsal endothelial sprouting in vitro. This coincides with the in vivo data that local delivery of EPO increases vascularity at the mid-stage of bone healing (day 14). In a mouse femoral fracture model, EPO promotes cartilaginous callus formation at days 7 and 14, and enhances bone healing at day 28 indexed by improved X-ray score and micro-CT analysis of microstructure of new bone regenerates, which results in improved biomechanical properties. Our results indicate that EPO enhances chondrogenic and angiogenic responses during bone repair. EPO's function on chondrocyte proliferation and differentiation is at least partially mediated by its receptor EPOR. EPO may serve as a therapeutic agent to facilitate skeletal regeneration.