Because osteoblasts and marrow adipocytes are derived from a common mesenchymal progenitor, increased adipogenesis may occur at the expense of osteoblasts, leading to bone loss. Our previous in vitro studies indicated that activation of the proadipogenic transcription factor peroxisome proliferator-activated receptor isoform gamma 2 with rosiglitazone suppressed osteoblast differentiation. Here, we show that 5-month-old Swiss-Webster mice receiving rosiglitazone for 28 d exhibited bone loss associated with an increase in marrow adipocytes, a decrease in the ratio of osteoblasts to osteoclasts, a reduction in bone formation rate, and a reduction in wall width--an index of the amount of bone formed by each team of osteoblasts. Rosiglitazone had no effect on the number of early osteoblast or osteoclast progenitors, or on osteoblast life span, but decreased the expression of the key osteoblastogenic transcription factors Runx2 and Osterix in cultures of marrow-derived mesenchymal progenitors. These effects were associated with diversion of bipotential progenitors from the osteoblast to the adipocyte lineage, and suppression of the differentiation of monopotential osteoblast progenitors. However, rosiglitazone had no effect on osteoblastic cells at later stages of differentiation. Hence, rosiglitazone attenuates osteoblast differentiation and thereby reduces bone formation rate in vivo, leading to bone loss. These findings provide a mechanistic explanation for the recent evidence that peroxisome proliferator-activated receptor isoform gamma activation is a negative regulator of bone mass and suggest that the increased production of oxidized fatty acids with age may indeed be an important mechanism for age-related osteoporosis in humans.