The 1,25 dihydroxyvitamin D3 [1,25(OH)2D3]-induced differentiation of osteoblasts comprises the sequential induction of cell cycle arrest at G0/G1 and the expression of bone matrix proteins. Reports differ on the effects of IGF binding protein (IGFBP)-5 on bone cell growth and osteoblastic function. IGFBP-5 can be growth stimulatory or inhibitory and can enhance or impair osteoblast function. In previous studies, we have shown that IGFBP-5 localizes to the nucleus and interacts with the retinoid receptors. We now show that IGFBP-5 interacts with nuclear vitamin D receptor (VDR) and blocks retinoid X receptor (RXR):VDR heterodimerization. VDR and IGFBP-5 were shown to colocalize to the nuclei of MG-63 and U2-OS cells and coimmunoprecipitate in nuclear extracts from these cells. Induction of osteocalcin promoter activity and alkaline phosphatase activity by 1,25(OH)2D3 were significantly enhanced when IGFBP-5 was down-regulated in U2-OS cells. Moreover, we found IGFBP-5 increased basal alkaline phosphatase activity and collagen alpha1 type 1 expression, and that 1,25(OH)2D3 was unable to further induce the expression of these bone differentiation markers in MG-63 cells. Expression of IGFBP-5 inhibited MG-63 cell growth and caused cell cycle arrest at G0/G1 and G2/M. Furthermore, IGFBP-5 reduced the effects of 1,25(OH)2D3 in blocking cell cycle progression at G0/G1 and decreased the expression of cyclin D1. These results demonstrate that IGFBP-5 can interact with VDR to prevent RXR:VDR heterodimerization and suggest that IGFBP-5 may attenuate the 1,25(OH)2D3-induced expression of bone differentiation markers while having a modest effect on the 1,25(OH)2D3-mediated inhibition of cell cycle progression in bone cells.