The healing of large bone defects remains a major unmet medical need. Our developmental engineering approach consists of the in vitro manufacturing of a living cartilage tissue construct that upon implantation forms bone by recapitulating an endochondral ossification process. Key to this strategy is the identification of the cells to produce such cartilage intermediates efficiently. We applied a cell selection strategy based on published skeletal stem cell markers using mouse embryonic limb cartilage as cell source and analysed their potential to form bone in an in vivo ectopic assay. FGF2 supplementation to the culture media for expansion blocked dedifferentiation of the embryonic cartilage cells in culture and enriched for stem cells and progenitors as quantified using the recently published CD marker set. However, when the stem cells and progenitors were fractionated from expanded embryonic cartilage cells and assessed in the ectopic assay, a major loss of bone forming potential was observed. We conclude that cell expansion appears to affect the association between cell identity based on CD markers and in vivo bone forming capacity.