Bone morphogenetic protein (BMP) signaling is a critical regulator of cartilage differentiation and endochondral ossification. Gain‐of‐function mutations in ALK2, a type I BMP receptor, cause the debilitating disorder fibrodysplasia ossificans progressiva (FOP) and result in progressive heterotopic (extraskeletal) endochondral ossification within soft connective tissues. Here, we used murine mesenchymal progenitor cells to investigate the contribution of Alk2 during chondrogenic differentiation and heterotopic endochondral ossification (HEO). Alk2^R206H/+ (gain‐of‐function), Alk2^CKO (loss‐of‐function), and wild‐type mouse embryonic fibroblasts were evaluated for chondrogenic potential. Chondrogenic differentiation was accelerated in Alk2^R206H/+ cells, due in part to enhanced sensitivity to BMP ligand. In vivo, Alk2^R206H/+ cells initiated robust HEO and recruited wild‐type cell contribution. Despite expression of other type I BMP receptors (Alk3 and Alk6), chondrogenesis of Alk2^CKO cells was severely impaired by absence of Alk2 during early differentiation. Alk2 is therefore a direct regulator of cartilage formation and mediates chondrogenic commitment of progenitor cells. These data establish that at least one effect of ALK2 gain‐of‐function mutations in FOP patients is enhanced chondrogenic differentiation which supports formation of heterotopic endochondral bone. This establishes ALK2 as a plausible therapeutic target during early chondrogenic stages of lesion formation for preventing heterotopic bone formation in FOP and other conditions. Stem Cells  2014;32:1289–1300