Vertebrates form their skeletal tissues from three distinct origins (the neural crest, paraxial mesoderm, and lateral plate mesoderm) through two distinct modes of ossification (intramembranous and endochondral ossification). Since the paraxial mesoderm generates both intramembranous and endochondral bones, it is thought to give rise to both osteoprogenitors and osteo-chondroprogenitors. However, it remains unclear what directs the paraxial mesoderm-derived cells toward these different fates in distinct skeletal elements during human skeletal development. To answer this question, we need experimental systems that recapitulate paraxial mesoderm-mediated intramembranous and endochondral ossification processes. In this study, we aimed to develop a human pluripotent stem cell (hPSC)-based system that models the human intramembranous ossification process. We found that spheroid culture of the hPSC-derived paraxial mesoderm derivatives generates osteoprogenitors or osteo-chondroprogenitors depending on stimuli. The former induced intramembranous ossification, and the latter endochondral ossification, in mouse renal capsules. Transcriptional profiling supported the notion that bone signatures were enriched in the intramembranous bone-like tissues. Thus, we developed a system that recapitulates intramembranous ossification, and that enables the induction of two distinct modes of ossification by controlling the cell fate of the hPSC-derived paraxial mesoderm derivatives. •We modeled the intramembranous ossification process using human stem cells.•Skeletal progenitors were generated from stem cell-derived mesoderm derivatives.•The progenitors induced intramembranous and endochondral ossification in vivo.•RNA-sequencing supported enrichment of bone signatures in the induced tissues.