Biglycan (BGN) has been identified as one of the critical components of the tendon‐derived stem cells (TDSCs) niche and may be related to tendon formation. However, so far, no study has demonstrated whether the soluble BGN could induce the tenogenic differentiation of TDSCs in vitro. The aim of this study was to investigate the effect of BGN on the tenogenic differentiation of TDSCs. The proliferation and tenogenic differentiation of TDSCs exposed to different concentrations of BGN (0, 50, 100, and 500 ng/ml) were determined by the live/dead cell staining assay, CCK‐8 assay, quantitative real‐time polymerase chain reaction (qRT‐PCR), and western blot analysis. The BGN signaling pathway of TDSCs (with and without 50 ng/ml of BGN) was determined by western blot analysis and qRT‐PCR analysis. At a concentration of 50 ng/ml, BGN increased the expression of the tenogenic markers THBS‐4 and TNMD at both the messenger RNA (mRNA) and protein levels. Meanwhile, 50 ng/ml of BGN inhibited the expression of the chondrogenic and osteogenic markers SOX9, ACN, and RUNX2 at both the mRNA and protein levels. Moreover, BGN (50 ng/ml) affected the expression of the components of the extracellular matrix of TDSCs. Additionally, BGN activated the Smad1/5/8 pathway as indicated by an increase in phosphorylation and demonstrated by inhibition experiments. Upregulation in the gene expression of BMP‐associated receptors (BMPRII, ActR‐IIa, and BMPR‐Ib) and Smad pathway components (Smad4 and 8) was observed. Taken together, BGN regulates tenogenic differentiation of TDSCs via BMP7/Smad1/5/8 pathway and this regulation may provide a basic insight into treating tendon injury.