Hyp mice having an inactivating mutation of the phosphate-regulating gene with homologies to endopeptidases on the X-chromosome (Phex) gene have bones with increased matrix extracellular phosphoglycoprotein (MEPE). An acidic, serine- and aspartic acid-rich motif (ASARM) is located in the C terminus of MEPE and other mineralized tissue matrix proteins. We studied the effects of ASARM peptides on mineralization and how PHEX and MEPE interactions contribute to X-linked hypophosphatemia (XLH). ASARM immunoreactivity was observed in the osteoid of wildtype bone and in the increased osteoid of Hyp mice. In wildtype bone, PHEX immunostaining was found particularly in osteoid osteocytes and their surrounding matrix. Treatment of MC3T3-E1 osteoblasts with triphosphorylated (3 phosphoserines) ASARM peptide (pASARM) caused a dose-dependent inhibition of mineralization. pASARM did not affect collagen deposition or osteoblast differentiation, suggesting that pASARM inhibits mineralization by direct binding to hydroxyapatite crystals. Binding of pASARM to mineralization foci in pASARM-treated cultures and to synthetic hydroxyapatite crystals was confirmed by colloidal-gold immunolabeling. Nonphosphorylated ASARM peptide showed little or no binding to hydroxyapatite and did not inhibit mineralization, showing the importance of ASARM phosphorylation in regulating mineralization. PHEX rescued the inhibition of osteoblast culture mineralization by pASARM, and mass spectrometry of cleaved peptides obtained after pASARM-PHEX incubations identified pASARM as a substrate for PHEX. These results, showing that pASARM inhibits mineralization by binding to hydroxyapatite and that this inhibitor can be cleaved by PHEX, provide a mechanism explaining how loss of PHEX activity can lead to extracellular matrix accumulation of ASARM resulting in the osteomalacia of XLH.