Estrogens exert their physiological effects on target tissues by interacting with the estrogen receptors, ERalpha and ERbeta. Estrogen replacement is one the most common and effective strategies used to prevent osteoporosis in postmenopausal women. Whereas it was thought that estrogens work exclusively by inhibiting bone resorption, our previous results show that 17beta-estradiol (E2) increases mouse bone morphogenetic protein (BMP)-2 mRNA, suggesting that estrogens may also enhance bone formation. In this study, we used quantitative real-time RT-PCR analysis to demonstrate that estrogens increase BMP-2 mRNA in mouse mesenchymal stem cells. The selective ER modulators, tamoxifen, raloxifene, and ICI-182,780 (ICI), failed to enhance BMP-2 mRNA, whereas ICI inhibited E2 stimulation of expression. To investigate if estrogens increase BMP-2 expression by transcriptional mechanisms and if the response is mediated by ERalpha and/or ERbeta, we studied the effects of estrogens on BMP-2 promoter activity in transient transfected C3H10T1/2 cells. E2 produced a dose-dependent induction of the mouse -2712 BMP-2 promoter activity in cells cotransfected with ERalpha and ERbeta. At a dose of 10 nM E2, ERalpha induced mouse BMP-2 promoter activity 9-fold, whereas a 3-fold increase was observed in cells cotransfected with ERbeta. Tamoxifen and raloxifene were weak activators of the mouse BMP-2 promoter via ERalpha, but not via ERbeta. ICI blocked the activation of BMP-2 promoter activity by E2 acting via both ERalpha and ERbeta, indicating that mouse BMP-2 promoter activation is ER dependent. In contrast to E2 and selective ER modulators, the phytoestrogen, genistein was more effective at activating the mouse BMP-2 promoter with ERbeta, compared with ERalpha. Using a deletion series of the BMP-2 promoter, we determined that AP-1 or Sp1 sites are not required for E2 activation. A mutation in a sequence at -415 to -402 (5'-GGGCCActcTGACCC-3') that resembles the classical estrogen-responsive element abolished the activation of the BMP-2 promoter in response to E2. Our studies demonstrate that E2 activation of mouse BMP-2 gene transcription requires ERalpha or ERbeta acting via a variant estrogen-responsive element binding site in the promoter, with ERalpha being the more efficacious regulator. Estrogenic compounds may enhance bone formation by increasing the transcription of the BMP-2 gene.