Glucocorticoid hormones have complex stimulatory and inhibitory effects on skeletal metabolism. Endogenous glucocorticoid signaling is required for normal bone formation in vivo, and synthetic glucocorticoids, such as dexamethasone, promote osteoblastic differentiation in several in vitro model systems. The mechanism by which these hormones induce osteogenesis remains poorly understood. We demonstrate here that the coordinate action of dexamethasone and the osteogenic transcription factor Runx2/Cbfa1 synergistically induces osteocalcin and bone sialoprotein gene expression, alkaline phosphatase activity, and biological mineral deposition in primary dermal fibroblasts. Dexamethasone decreased Runx2 phosphoserine levels, particularly on Ser125, in parallel with the upregulation of mitogen-activated protein kinase (MAPK) phosphatase-1 (MKP-1) through a glucocorticoid-receptor-mediated mechanism. Inhibition of MKP-1 abrogated the dexamethasone-induced decrease in Runx2 serine phosphorylation, suggesting that glucocorticoids modulate Runx2 phosphorylation via MKP-1. Mutation of Ser125 to glutamic acid, mimicking constitutive phosphorylation, inhibited Runx2-mediated osteoblastic differentiation, which was not rescued by dexamethasone treatment. Conversely, mutation of Ser125 to glycine, mimicking constitutive dephosphorylation, markedly increased osteoblastic differentiation, which was enhanced by, but did not require, additional dexamethasone supplementation. Collectively, these results demonstrate that dexamethasone induces osteogenesis, at least in part, by modulating the phosphorylation state of a negative-regulatory serine residue (Ser125) on Runx2. This work identifies a novel mechanism for glucocorticoid-induced osteogenic differentiation and provides insights into the role of Runx2 phosphorylation during skeletal development.