Mesenchymal cells can differentiate into osteoblasts, adipocytes, myoblasts, or chondroblasts. Whether mesenchymal cells that have initiated differentiation along one lineage can transdifferentiate into another is largely unknown. Using 3T3-F442A preadipocytes, we explored whether extracellular signals could redirect their differentiation from adipocyte into osteoblast. 3T3-F442A cells expressed receptors and Smads required for bone morphogenetic protein (BMP) signaling. BMP-2 increased proliferation and induced the early osteoblast differentiation marker alkaline phosphatase, yet only mildly affected adipogenic differentiation. Retinoic acid inhibited adipose conversion and cooperated with BMP-2 to enhance proliferation, inhibit adipogenesis, and promote early osteoblastic differentiation. Expression of BMP-RII together with BMP-RIA or BMP-RIB suppressed adipogenesis of 3T3-F442A cells and promoted full osteoblastic differentiation in response to retinoic acid. Osteoblastic differentiation was characterized by induction of cbfa1, osteocalcin, and collagen I expression, and extracellular matrix calcification. These results indicate that 3T3-F442A preadipocytes can be converted into fully differentiated osteoblasts in response to extracellular signaling cues. Furthermore, BMP and retinoic acid signaling cooperate to stimulate cell proliferation, repress adipogenesis, and promote osteoblast differentiation. Finally, BMP-RIA and BMP-RIB induced osteoblast differentiation and repressed adipocytic differentiation to a similar extent.