Heterotopic ossification is common in tendon healing after trauma, but the detailed mechanisms remain unknown. Tendon-derived stem cells (TDSCs) are a type of progenitor cell found in the tendon niche, and their incorrect differentiation after trauma may lead to tendon calcification. The expression of hepatocyte growth factor (HGF) presents drastic fluctuations in serum/tissue after trauma and was found to activate quiescent stellate cells and contribute to wound healing; however, its potential role in TDSCs remains elusive. In this study, TDSCs isolated from rats were cultured in media containing HGF with or without a signaling inhibitor, and the proliferation, migration, and differentiation ability of TDSCs were measured to determine the role and mechanism of HGF in TDSCs. We showed that HGF promotes TDSC proliferation and migration but inhibits TDSC osteogenic differentiation ability. HGF activated-HGF/c-Met, mitogen-activated protein kinase (MAPK)/extracellular signal-regulated protein kinases 1 and 2 (ERK1/2), and phosphoinositide 3-kinase (PI3K)/protein kinase B (AKT) signaling, which was positively correlated with TDSCs proliferation and migration but negatively related to TDSC osteogenic differentiation ability. The phosphorylation of Smad1/5/8 was also negatively related to HGF/c-Met, MAPK/ERK1/2, and PI3K/AKT signaling, which demonstrated that the inhibition of osteogenic differentiation was dependent on BMP/Smad1/5/8 signaling. Overall, we showed that HGF could promote TDSCs proliferation and migration and inhibit osteogenic differentiation in vitro, suggesting a potential role for HGF as a cytokine treatment of tendon trauma.