Ewing's sarcoma is a highly malignant bone tumor found in children and adolescents, and the origin of this malignancy is not well understood. Here, we introduced a Ewing's sarcoma-associated genetic fusion of the genes encoding the RNA-binding protein EWS and the transcription factor ETS (EWS-ETS) into a fraction of cells enriched for osteochondrogenic progenitors derived from the embryonic superficial zone (eSZ) of long bones collected from late gestational murine embryos. EWS-ETS fusions efficiently induced Ewing's sarcoma-like small round cell sarcoma formation by these cells. Analysis of the eSZ revealed a fraction of a precursor cells that express growth/differentiation factor 5 (Gdf5), the transcription factor Erg, and parathyroid hormone-like hormone (Pthlh), and selection of the Pthlh-positive fraction alone further enhanced EWS-ETS-dependent tumor induction. Genes downstream of the EWS-ETS fusion protein were quite transcriptionally active in eSZ cells, especially in regions in which the chromatin structure of the ETS-responsive locus was open. Inhibition of β-catenin, poly (ADP-ribose) polymerase 1 (PARP1), or enhancer of zeste homolog 2 (EZH2) suppressed cell growth in a murine model of Ewing's sarcoma, suggesting the utility of the current system as a preclinical model. These results indicate that eSZ cells are highly enriched in precursors to Ewing's sarcoma and provide clues to the histogenesis of Ewing's sarcoma in bone.