Sclerotome is the embryonic progenitor of the axial skeleton. It was previously shown that Tgfbr2 is required in sclerotome for differentiation of fibrous skeletal tissues including the annulus fibrosus of the intervertebral disc. Alternatively, BMP signaling is required to form the vertebral body through chondrogenesis. In addition, TGFβ added to sclerotome cultures induces expression of markers for fibrous tissue differentiation but not cartilage or bone. The mechanism of how TGFβ signaling regulates this lineage decision in sclerotome is not known and could be due to the production of instructive or inhibitory signals or a combination of the two. Here we show that TGFβ antagonizes BMP/ Smad1/5 signaling in primary sclerotome likely through regulation of Noggin, an extracellular BMP antagonist, to prevent chondrogenesis. We then tested whether inhibition of BMP signaling, and inhibition of chondrogenesis, is sufficient to push cells toward the fibrous cell fate. While Noggin inhibited BMP/ Smad1/5 signaling and the formation of chondrogenic nodules in sclerotome cultures; Noggin and inhibition of BMP signaling through Gremlin or DMH2 were insufficient to induce fibrous tissue differentiation. The results suggest inhibition of BMP signaling is not sufficient to stimulate fibrous tissue differentiation and additional signals are likely required. We propose that TGFβ has a dual role in regulating sclerotome fate. First, it inhibits BMP signaling potentially through Noggin to prevent chondrogenesis and, second, it provides an unknown instructive signal to promote fibrous tissue differentiation in sclerotome. The results have implications for the design of stem cell-based therapies for skeletal diseases.