Osteoblast cell lines capable of undergoing bone formation in vitro would provide useful models for understanding gene expression during bone cell differentiation. To that end, transgenic mice were produced using a 2.9-kilobase bone morphogenetic protein 2 (BMP-2) promoter fragment, driving simian virus 40 T antigen as the transgene. The expression of simian virus 40 T antigen driven by the BMP-2 promoter immortalizes the cells. From the calvaria of the transgenic mouse, several osteoblastic cell lines were isolated and cloned. One clonal osteoblast cell line, called 2T3, has been characterized and shown to produce mineralized bone nodules. Recombinant human BMP-2 (rhBMP-2) accelerates the formation of these mineralized bone nodules. 2T3 cells express alkaline phosphatase, collagen type I, osteocalcin, and endogenous BMP-2 messenger RNA (mRNA) in a similar chronological order as normal freshly isolated fetal rat calvarial cells during early nodule formation and subsequent mineralization. The 2T3 cells also exhibit extensive growth and multilayering during differentiation, as demonstrated by growth curves and transmission electron microscopy. As with freshly isolated fetal rat calvarial cells, 1,25-dihydroxyvitamin D3 inhibited alkaline phosphatase activity and alkaline phosphatase mRNA expression, but stimulated osteocalcin mRNA expression, but stimulated osteocalcin mRNA expression. rhBMP-2 also accelerated the expression of alkaline phosphatase activity and mRNA, osteocalcin mRNA, and BMP-2 mRNA in 2T3 cells along with the formation of larger and more mineralized bone nodules. The 2T3 cell exhibits autoregulation at the mRNA and transcriptional levels. The 2T3 osteoblast cell line offers a system for examining autoregulation of the BMP-2 gene and downstream gene expression during osteoblast differentiation. 2T3 cells are reclonable and maintain their differentiation capabilities.