Bone marrow stromal cells (BMSCs) have been shown to contribute to regeneration of numerous mesodermal tissue types including adipose, bone, and cartilage. Recent studies have shown that BMSCs migrate into damaged bone and help facilitate effects such as fracture healing. Although bone morphogenic proteins have been shown to stimulate bone repair, their levels remain low postfracture. Peripheral blood levels of transforming growth factor beta1 (TGF-beta1), on the other hand, rise dramatically within 2 weeks postfracture. Therefore, we investigated the role of TGF-beta1 on BMSC osteogenic differentiation in vitro. Murine BMSCs were freshly isolated from femurs, fluorescence-activated cell sorted for Sca-1, cultured in Iscove's modified Dulbecco's medium, and exposed to TGF-beta1. After 14 days, real-time reverse transcriptase-polymerase chain reaction and immunohistochemical staining were performed to examine the expression of self-renewal and terminal differentiation markers. Results showed that the treatment with TGF-beta1 reduced mRNA levels of self-renewal markers (Oct4, Stella, Nanos3, and Abcg2) by twofold and increased osteoblast differentiation markers (Runx2, Opn, and Col1) up to sevenfold compared with controls. We also observed decreased mRNA levels of adipogenic markers (Pparg2 and Adn) and an increase in alkaline phosphatase activity. Transcriptional coactivator with PDZ-binding motif (TAZ) mRNA and protein levels were elevated up to threefold following TGF-beta1 stimulation. In conclusion, our findings revealed an unexpected osteogenic differentiation pathway in murine BMSCs under the control of TGF-beta that is mediated by TAZ, which is known to increase RUNX2-dependent gene transcription while repressing PPARgamma2-dependent transcription. This is the first report demonstrating the upregulation of TAZ activity in BMSCs by a physiological growth factor present during acute bone injury.