Induced pluripotent stem (iPS) cells are generated from adult somatic cells by transduction of defined factors. Given their unlimited proliferation and differentiation potential, iPS cells represent promising sources for cell therapy and tools for research and drug discovery. However, systems for the directional differentiation of iPS cells toward paraxial mesodermal lineages have not been reported. In the present study, we established a protocol for the differentiation of mouse iPS cells into paraxial mesodermal lineages in serum-free culture. The protocol was dependent on Activin signaling in addition to BMP and Wnt signaling which were previously shown to be effective for mouse ES cell differentiation. Independently of the cell origin, the number of transgenes, or the type of vectors used to generate iPS cells, the use of serum-free monolayer culture stimulated with a combination of BMP4, Activin A, and LiCl enabled preferential promotion of mouse iPS cells to a PDGFR-α(+)/Flk-1(-) population, which represents a paraxial mesodermal lineage. The mouse iPS cell-derived paraxial mesodermal cells exhibited differentiation potential into osteogenic, chondrogenic, and myogenic cells both in vitro and in vivo and contributed to muscle regeneration. Moreover, purification of the PDGFR-α(+)/KDR(-) population after differentiation allowed enrichment of human iPS cell populations with paraxial mesodermal characteristics. The resultant PDGFR-α(+)/KDR(-) population derived from human iPS cells specifically exhibited osteogenic, chondrogenic, and myogenic differentiation potential in vitro, implying generation of paraxial mesodermal progenitors similar to mouse iPS cell-derived progenitors. These findings highlight the potential of protocols based on the serum-free, stepwise induction and purification of paraxial mesodermal cell lineages for use in stem cell therapies to treat diseased bone, cartilage, and muscle.