The identification of lymphocyte subsets with non-overlapping effector functions has been pivotal to the development of targeted therapies in immune-mediated inflammatory diseases (IMIDs) 1, 2. However, it remains unclear whether fibroblast subclasses with non-overlapping functions also exist and are responsible for the wide variety of tissue-driven processes observed in IMIDs, such as inflammation and damage 3, 4, 5. Here we identify and describe the biology of distinct subsets of fibroblasts responsible for mediating either inflammation or tissue damage in arthritis. We show that deletion of fibroblast activation protein-α (FAPα)+ fibroblasts suppressed both inflammation and bone erosions in mouse models of resolving and persistent arthritis. Single-cell transcriptional analysis identified two distinct fibroblast subsets within the FAPα+ population: FAPα+ THY1+ immune effector fibroblasts located in the synovial sub-lining, and FAPα+ THY1− destructive fibroblasts restricted to the synovial lining layer. When adoptively transferred into the joint, FAPα+ THY1− fibroblasts selectively mediate bone and cartilage damage with little effect on inflammation, whereas transfer of FAPα+ THY1+ fibroblasts resulted in a more severe and persistent inflammatory arthritis, with minimal effect on bone and cartilage. Our findings describing anatomically discrete, functionally distinct fibroblast subsets with non-overlapping functions have important implications for cell-based therapies aimed at modulating inflammation and tissue damage.