Pluripotent stem cells (PSCs) are attractive regenerative therapy tools for skeletal tissues. However, a deep understanding of skeletal development is required in order to model this development with PSCs, and for the application of PSCs in clinical settings. Skeletal tissues originate from three types of cell populations: the paraxial mesoderm, lateral plate mesoderm, and neural crest. The paraxial mesoderm gives rise to the sclerotome mainly through somitogenesis. In this process, key developmental processes, including initiation of the segmentation clock, formation of the determination front, and the mesenchymal-epithelial transition, are sequentially coordinated. The sclerotome further forms vertebral columns and contributes to various other tissues, such as tendons, vessels (including the dorsal aorta), and even meninges. To understand the molecular mechanisms underlying these developmental processes, extensive studies have been conducted. These studies have demonstrated that a gradient of activities involving multiple signaling pathways specify the embryonic axis and induce cell-type-specific master transcription factors in a spatiotemporal manner. Moreover, applying the knowledge of mesoderm development, researchers have attempted to recapitulate the in vivo development processes in in vitro settings, using mouse and human PSCs. In this review, we summarize the state-of-the-art understanding of mesoderm development and in vitro modeling of mesoderm development using PSCs. We also discuss future perspectives on the use of PSCs to generate skeletal tissues for basic research and clinical applications.