Functional stromal cells are known to support bone marrow regeneration after chemotherapy or radiation-induced injury to prevent prolonged myelosuppression. However, it is not known how stromal cells within the bone marrow are regenerated after injury. We have utilized a whole bone transplantation model that mimics the initial bone marrow necrosis and fatty infiltration that is seen after bone marrow injury and subsequent recovery. We demonstrate that periosteal skeletal stem cells (P-SSCs) can migrate into the bone marrow and contribute to stromal regeneration and hematopoietic recovery. Once in the bone marrow, P-SSCs are phenotypically and functionally reprogrammed into bone marrow mesenchymal stem cells (BM-MSCs), expressing high levels of hematopoietic stem cell (HSC) niche factors, such as Cxcl12 and Kitl. Additionally, our results further indicate that P-SSCs are more resistant to acute stress than BM-MSCs. Here, we report a new function of P-SSCs, highlighting their major plasticity and the role of the periosteum as a potential source of BM-MSCs following acute bone marrow injury.