Postnatal bone marrow houses mesenchymal progenitor cells that are osteoblast precursors. These cells have established therapeutic potential, but they are difficult to maintain and expand in vitro, presumably because little is known about the mechanisms controlling their fate decisions. To investigate the potential role of Notch signaling in osteoblastogenesis, we used conditional alleles to genetically remove components of the Notch signaling system during skeletal development. We found that disruption of Notch signaling in the limb skeletogenic mesenchyme markedly increased trabecular bone mass in adolescent mice. Notably, mesenchymal progenitors were undetectable in the bone marrow of mice with high bone mass. As a result, these mice developed severe osteopenia as they aged. Moreover, Notch signaling seemed to inhibit osteoblast differentiation through Hes or Hey proteins, which diminished Runx2 transcriptional activity via physical interaction. These results support a model wherein Notch signaling in bone marrow normally acts to maintain a pool of mesenchymal progenitors by suppressing osteoblast differentiation. Thus, mesenchymal progenitors may be expanded in vitro by activating the Notch pathway, whereas bone formation in vivo may be enhanced by transiently suppressing this pathway.