Insulin-like growth factor I (IGF-I) is an important growth factor for bone, yet the mechanisms that mediate its anabolic activity in the skeleton are poorly understood. To examine the effects of locally produced IGF-I in bone in vivo, we targeted expression IGF-I to osteoblasts of transgenic mice using a human osteocalcin promoter. The IGF-I transgene was expressed in bone osteoblasts in OC-IGF-I transgenic mice at high levels in the absence of any change in serum IGF-I levels, or of total body growth. Bone formation rate at the distal femur in 3-week-old OC-IGF-I transgenic mice was approximately twice that of controls. By 6 weeks, bone mineral density as measured by dual energy x-ray, and quantitative computed tomography was significantly greater in OC-IGF-I transgenic mice compared with controls. Histomorphometric measurements revealed a marked (30%) increase femoral cancellous bone volume in the OC-IGF-I transgenic mice, but no change in the total number of osteoblasts or osteoclasts. Transgenic mice also demonstrated an increase in the osteocyte lacunea occupancy, suggesting that IGF-I may extend the osteocyte life span. We conclude that IGF-I produced locally in bone osteoblasts exerts its anabolic effect primarily by increasing the activity of resident osteoblasts.