Bone marrow fibrosis is the most extensive matrix remodeling of the microenvironment and can include de novo formation of bone (osteosclerosis). Spatiotemporal information on the contribution of distinct bone marrow niche populations to this process is incomplete. We demonstrate that fibrosis-inducing hematopoietic cells cause profibrotic reprogramming of perivascular CXCL12-abundant reticular (CAR) progenitor cells, resulting in loss of their hematopoiesis-support and upregulation of osteogenic and pro-apoptotic programs. In turn, peritrabecular osteolineage cells (OLCs) are activated in an injury-specific, Wnt-dependent manner, comparable to skeletal repair. OLCs fuel bone marrow fibrosis through their expansion and skewed differentiation, resulting in osteosclerosis and expansion of Ly6a+ fibroblasts. NCAM1 expression marks peritrabecular OLCs and their expansion into the central marrow is specific for fibrosis in mice and patients. Peritrabecular stromal β-catenin expression is linked to fibrosis in patients, and inhibition of Wnt signaling reduces bone marrow fibrosis and osteosclerosis, possibly being a clinically relevant therapeutic target.