Osteoarthritis (OA), which carries an enormous disease burden across the world, is characterised by irreversible degeneration of articular cartilage (AC), and subsequently bone. The cellular cause of OA is unknown. Here, using lineage tracing in mice, we show that the BMP-antagonist Gremlin 1 (Grem1) marks a novel chondrogenic progenitor (CP) cell population in the articular surface that generates joint cartilage and subchondral bone during development and adulthood. Notably, this CP population is depleted in injury-induced OA, and with age. OA is also induced by toxin-mediated ablation of Grem1 CP cells in young mice. Transcriptomic analysis and functional modelling in mice revealed articular surface Grem1-lineage cells are dependent on Foxo1; ablation of Foxo1 in Grem1-lineage cells led to early OA. This analysis identified FGFR3 signalling as a therapeutic target, and injection of its activator, FGF18, caused proliferation of Grem1-lineage CP cells, increased cartilage thickness, and reduced OA pathology. We propose that OA arises from the loss of CP cells at the articular surface secondary to an imbalance in progenitor cell homeostasis and present a new progenitor population as a locus for OA therapy.