The alveolar bone is a specialized mineralized structure supporting the lifelong functionality of the tooth in mastication. The alveolar bone develops from the dental follicle (DF) during tooth root formation due to deliberate epithelial-mesenchymal interactions. However, how DF progenitor cell fates are regulated toward alveolar bone osteoblasts remains unknown. We find that Hedgehog signaling activities are transiently activated during the onset of tooth root formation and alveolar bone formation. Parathyroid hormone-related protein (PTHrP)-expressing DF cells are highly responsive to Hedgehog signaling, yet constitutive Hedgehog activation using Pthrp-creER and Ptch1-floxed alleles potently suppresses alveolar osteoblast and ligament differentiation of PTHrP DF cells, resulting in striking susceptibility to alveolar bone loss. Concomitant inactivation of Hedgehog-target Foxf1 factor in Hedgehog-activated PTHrP DF cells partially rescued alveolar bone defects. Therefore, the Hedgehog-Foxf pathway needs to be suppressed to drive alveolar bone osteoblast fates of PTHrP DF cells, unraveling a unique tooth-specific mechanism of bone formation requiring deliberate on-off regulations of Hedgehog signaling.