The osteoblast is the bone-forming cell. The molecular basis of osteoblast-specific gene expression and differentiation is unknown. We previously identified an osteoblast-specific cis-acting element, termed OSE2, in the Osteocalcin promoter. We have now cloned the cDNA encoding Osf2/Cbfa1, the protein that binds to OSE2. Osf2/Cbfa1 expression is initiated in the mesenchymal condensations of the developing skeleton, is strictly restricted to cells of the osteoblast lineage thereafter, and is regulated by BMP7 and vitamin D3. Osf2/Cbfa1 binds to and regulates the expression of multiple genes expressed in osteoblasts. Finally, forced expression of Osf2/Cbfa1 in nonosteoblastic cells induces the expression of the principal osteoblast-specific genes. This study identifies Osf2/Cbfa1 as an osteoblast-specific transcription factor and as a regulator of osteoblast differentiation.