Subchondral bone tissue plays a key role in the initiation and progression of human and experimental osteoarthritis and has received considerable interest as a treatment target. Elevated bone turnover and remodeling leads to subchondral bone sclerosis that is characterized by an increase in bone material that is less mineralized. The aim of this study was to investigate whether perturbations in subchondral bone-resident progenitor cells might play a role in aberrant bone formation in osteoarthritis. Colony formation assays indicated similar clonogenicity of progenitor cells from non-sclerotic and sclerotic subchondral trabecular bone tissues of osteoarthritic knee and hip joints compared with controls from iliac crest bone. However, the osteogenic potential at the clonal level was approximately two-fold higher in osteoarthritis than controls. An osteogenic differentiation assay indicated an efficient induction of alkaline phosphatase activity but blunted in vitro matrix mineralization irrespective of the presence of sclerosis. Micro-computed tomography and histology demonstrated the formation of de novo calcified tissues by osteoblast-like cells in an ectopic implantation model. The expression of bone sialoprotein, a marker for osteoblast maturation and mineralization, was significantly less in sclerotic progenitor cells. Perturbation of resident progenitor cell function is associated with subchondral bone sclerosis and may be a treatment target for osteoarthritis.