Much of the vertebrate skeleton develops from cartilage templates that are progressively remodeled into bone. Lineage tracing studies in mouse suggest that chondrocytes within these templates persist and become osteoblasts, yet the underlying mechanisms of this process and whether chondrocytes can generate other derivatives remain unclear. We find that zebrafish cartilages undergo extensive remodeling and vascularization during juvenile stages to generate fat-filled bones. Growth plate chondrocytes marked by sox10 and col2a1a contribute to osteoblasts, marrow adipocytes, and mesenchymal cells within adult bones. At the edge of the hypertrophic zone, chondrocytes re-enter the cell cycle and express leptin receptor (lepr), suggesting conversion into progenitors. Further, mutation of matrix metalloproteinase 9 (mmp9) results in delayed growth plate remodeling and fewer marrow adipocytes. Our data support Mmp9-dependent growth plate remodeling and conversion of chondrocytes into osteoblasts and marrow adipocytes as conserved features of bony vertebrates.