Bone has a capability to repair itself when it is fractured. Repair involves the generation of intermediate tissues, such as fibrous connective tissue, cartilage and woven bone, before final bone healing can occur. The intermediate tissues serve to stabilise the mechanical environment and provide a scaffold for differentiation of new tissues. The repair process is fundamentally affected by mechanical loading and by the geometric configuration of the fracture fragments. Biomechanical analyses of fracture healing have previously computed the stress distribution within the callus and identified the components of the stress tensor favouring or inhibiting differentiation of particular tissue phenotypes. In this paper, a biphasic poroelastic finite element model of a fracture callus is used to simulate the time-course of tissue differentiation during fracture healing. The simulation begins with granulation tissue (post-inflammation phase) and finishes with bone resorption. The biomechanical regulatory model assumes that tissue differentiation is controlled by a combination of shear strain and fluid flow acting within the tissue. High shear strain and fluid flows are assumed to deform the precursor cells stimulating formation of fibrous connective tissue, lower levels stimulate formation of cartilage, and lower again allows ossification. This mechano-regulatory scheme was tested by simulating healing in fractures with different gap sizes and loading magnitudes. The appearance and disappearance of the various tissues found in a callus was similar to histological observation. The effect of gap size and loading magnitude on the rate of reduction of the interfragmentary strain was sufficiently close to confirm the hypothesis that tissue differentiation phenomena could be governed by the proposed mechano-regulation model.