Vitamin C (ascorbic acid, AA) is a well-known regulator of bone and cartilage metabolism. However, the mechanisms of AA’s action in these tissues are only partly understood. In this study, we confirmed that AA contributes to bone and cartilage metabolism by showing decreased articular cartilage and trabecular bone in AA-deficient spontaneous fracture (sfx) mutant mice. In vitro, we found that AA exerts differential effects on chondrocyte and osteoblast differentiation. Since AA is known to increase levels of 5-hydroxymethylcytosine (5-hmC) and induce DNA demethylation via the ten-eleven translocases (TETs), and since prolyl hydroxylase domain-containing protein 2 (PHD2), a known mediator of AA’s effects in these tissues, is part of the same enzyme family as the TETs, we next investigated whether increases in 5-hmC might mediate some of these effects. All TETs and PHDs are expressed in chondrocytes and osteoblasts, and PHD2 is localized in both the cytoplasm and nucleus of the cell, lending plausibility to the hypothesis of altered 5-hmC content in these cells. We found that AA treatment increased levels of 5-hmC in both cell types globally, notably including promoter regions of osteoblast differentiation genes. Furthermore, inhibition of PHD2 decreased 5-hmC levels in chondrocyte differentiation gene promoters, and knockdown of Phd2 in chondrocytes reduced global 5-hmC levels, suggesting for the first time that PHD2 may itself directly mediate increases in 5-hmC in chondrocyte and osteoblast genes. Further investigation of this mechanism could lead to novel therapeutic approaches to treat debilitating diseases such as osteoarthritis and osteoporosis.