The development of musculoskeletal tissues such as tendon, enthesis, and bone relies on proliferation and differentiation of mesenchymal progenitor cells. Gli1+ cells have been described as putative stem cells in several tissues and are presumed to play critical roles in tissue formation and maintenance. For example, the enthesis, a fibrocartilage tissue that connects tendon to bone, is mineralized postnatally by a pool of Gli1+ progenitor cells. These cells are regulated by hedgehog signaling, but it is unclear if TGFβ signaling, necessary for tenogenesis, also plays a role in their behavior. To examine the role of TGFβ signaling in Gli1+ cell function, the receptor for TGFβ, TbR2, was deleted in Gli1-lineage cells in mice at P5. Decreased TGFβ signaling in these cells led to defects in tendon enthesis formation by P56, including defective bone morphometry underlying the enthesis and decreased mechanical properties. Immunohistochemical staining of these Gli1+ cells showed that loss of TGFβ signaling reduced proliferation and increased apoptosis. In vitro experiments using Gli1+ cells isolated from mouse tail tendons demonstrated that TGFβ controls cell proliferation and differentiation through canonical and non-canonical pathways and that TGFβ directly controls the tendon transcription factor scleraxis by binding to its distant enhancer. These results have implications in the development of treatments for tendon and enthesis pathologies.