The periosteum, a connective tissue layer covering bone surfaces, possesses excellent bone regeneration capabilities and serves as the primary reservoir of stem cells for bone repair. This review summarizes the organizational structure and physiological functions of the periosteum, with a focus on the cell markers and biological characteristics of periosteal stem cells (PSCs). In recent years, utilizing techniques such as single-cell sequencing, different subsets have been identified, and their good proliferation and multilineage differentiation potential have been revealed. The biological functions of PSCs are regulated by complex molecular signals. There may be interactions between different signals to orchestrate periosteal stem cell activities. Additionally, this review outlines the prospective applications of PSCs in bone tissue engineering. Future investigations should prioritize exploring the heterogeneity of PSCs and exploring the application of different PSCs subsets in both tissue engineering and clinical settings.