Estrogen is important for both the sexual dimorphism of the skeleton during growth and the maintenance of bone balance in adults. This report describes the in vivo effects of estrogen on bone formation and gene expression in the tibial diaphysis of ovariectomized rats. Rats were ovariectomized at 8 weeks of age and were given diethylstilbestrol (DES) or placebo 1 week later as sc sustained release pellets. Histomorphometry revealed that that the periosteal bone formation and apposition rates were reduced at the tibial diaphysis 1 week after beginning estrogen treatment and further reduced after 2 weeks. Interestingly, DES treatment had no effect on endosteal bone formation, but suppressed endosteal bone resorption. Northern analysis of freshly isolated periosteal cells from tibiae and femora revealed that DES treatment resulted in dramatic decreases in steady state mRNA levels for the bone matrix proteins osteocalcin, prepro alpha 2(I) chain of type 1 collagen, osteonectin, and osteopontin as well as the osteoblast marker enzyme alkaline phosphatase. The results suggest that the inhibitory effects of estrogen on radial bone growth in rats are mediated, or at least accompanied, by the inhibition of the expression of bone matrix protein genes in periosteal cells.