Mutation of the RB-1 and p53 tumor suppressors is associated with the development of human osteosarcoma. With the goal of generating a mouse model of this disease, we used conditional and transgenic mouse strains to inactivate Rb and/or p53 specifically in osteoblast precursors. The resulting Rb;p53 double mutant (DKO) animals are viable but develop early onset osteosarcomas with complete penetrance. These tumors display many of the characteristics of human osteosarcomas, including being highly metastatic. We established cell lines from the DKO osteosarcomas to further investigate their properties. These immortalized cell lines are highly proliferative and they retain their tumorigenic potential, as judged by their ability to form metastatic tumors in immunocompromised mice. Moreover, they can be induced to differentiate and, depending on the inductive signal, will adopt either the osteogenic or adipogenic fate. Consistent with this multipotency, a significant portion of these tumor cells express Sca-1, a marker that is typically associated with stem cells/uncommitted progenitors. By assaying sorted cells in transplant assays, we demonstrate that the tumorigenicity of the osteosarcoma cell lines correlates with the presence of the Sca-1 marker. Finally, we show that loss of Rb and p53 in Sca-1-positive mesenchymal stem/progenitor cells is sufficient to yield transformed cells that can initiate osteosarcoma formation in vivo.