The mesenchymal cell is a multipotent stem cell with the capacity to give rise to multiple cell types such as adipocytes, osteoblasts, chondrocytes, and myocytes. However, the molecular events responsible for their lineage specification and differentiation remain obscure. Here we show that inactivation of chicken ovalbumin upstream promoter-transcription factor II (COUP-TFII), a member of the nuclear receptor superfamily, in mesenchymal progenitors favors osteoblast and myoblast development while simultaneously impairing adipogenic and chondrogenic programs. During mouse embryogenesis, COUP-TFII protein is highly detected in the mesenchymal compartment and is involved in mesoderm tissue formation. Ablation of COUP-TFII in mice led to higher bone density, increased muscle mass, and suppression of cartilage and fat formation. We further demonstrate that COUP-TFII directs the plasticity of mesenchymal precursors primarily through the combined modulation of Wnt signaling, Runx2 activity, as well as PPARγ and Sox9 expression. Together, our results provide insight into the mechanisms whereby a single nuclear receptor can fine-tune the lineage-specific differentiation of a progenitor cell.