Bone health and body weight gain have significant economic and welfare importance in the poultry industry. Mesenchymal stem cells (MSCs) are common progenitors of different cell lineages such as osteoblasts, adipocytes, and myocytes. Specific oxysterols have shown to be pro-osteogenic and anti-adipogenic in mouse and human MSCs. To determine the effect of 20(S)-hydroxycholesterol (20S) on osteogenic, adipogenic, and myogenic differentiation in chicken, mesenchymal stem cells isolated from compact bones of broiler chickens (cBMSCs) were subjected to various doses of 20S, and markers of lineage-specific mRNA were analyzed using real-time PCR and cell cytochemistry. Further studies were conducted to evaluate the molecular mechanisms involved in lineage-specific differentiation pathways. Like human and mouse MSCs, 20S oxysterol expressed pro-osteogenic, pro-myogenic, and anti-adipogenic differentiation potential in cBMSCs. Moreover, 20(S)-Hydroxycholesterol induced markers of osteogenic genes and myogenic regulatory factors when exposed to cBMSCs treated with their specific medium. In contrast, 20S oxysterol suppressed expression of adipogenic marker genes when exposed to cBMSCs treated with OA, an adipogenic precursor of cBMSCs. To elucidate the molecular mechanism by which 20S exerts its differentiation potential in all three lineages, we focused on the hedgehog signaling pathway. The hedgehog inhibitor, cyclopamine, completely reversed the effect of 20S induced expression of osteogenic and anti-adipogenic mRNA. However, there was no change in the mRNA expression of myogenic genes. The results showed that 20S oxysterol promotes osteogenic and myogenic differentiation and decreases adipocyte differentiation of cBMSCs. This study also showed that the induction of osteogenesis and adipogenesis inhibition in cBMSCs by 20S is mediated through the hedgehog signaling mechanism. The results indicated that 20(S) could play an important role in the differentiation of chicken-derived MSCs and provided the theory basis on developing an intervention strategy to regulate skeletal, myogenic, and adipogenic differentiation in chicken, which will contribute to improving chicken bone health and meat quality. The current results provide the rationale for the further study of regulatory mechanisms of bioactive molecules on the differentiation of MSCs in chicken, which can help to address skeletal health problems in poultry.