The decrease in bone volume associated with osteoporosis and age-related osteopenia is accompanied by increased marrow adipose tissue formation. Reversal of this process may provide a novel therapeutic approach for osteopenic disorders. We have shown that cells cultured from human trabecular bone are not only osteogenic, but are able also to undergo adipocyte differentiation under defined culture conditions. Osteoblast differentiation was induced by 1,25-dihydroxyvitamin D3 (1,25(OH)2D3) and adipocyte differentiation by dexamethasone (dex) plus 3-isobutyl-1-methylxanthine (IBMX) treatment. Adipogenesis was characterized by lineage-specific enzyme and gene activities, alpha-glycerophosphate-3-dehydrogenase activity, fatty acid binding protein, aP2 and lipoprotein lipase expression. Osteoblastogenesis was assessed by osteoblast characteristic 1,25(OH)2D3 induction of alkaline phosphatase activity and osteoblast-specific 1,25(OH)2D3-induced osteocalcin synthesis and release. We provide evidence for a common pluripotent mesenchymal stem cell that is able either to undergo adipogenesis or osteoblastogenesis, using clonal cell lines derived from human trabecular bone cell cultures. Adipogenesis can be induced also by long chain fatty acids and the thiazolidinedione troglitazone. Dex plus IBMX-induced adipogenesis can be inhibited by interleukin-1beta, tumor necrosis factor-alpha, and transforming growth factor-beta. Interestingly, and in contrast to extramedullary adipocyte differentiation as shown by mouse 3T3L-1 and a human liposarcoma SW872 cell line, trabecular bone adipogenesis was unaffected by insulin. Also, the formation of fully differentiated adipocytes from trabecular bone cells after troglitazone treatment and long chain fatty acids was dependent on increased expression of the nuclear hormone receptor peroxisome proliferator-activated receptor gamma2 caused by dex plus IBMX. Specific inhibition of marrow adipogenesis and promotion of osteoblastogenesis of a common precursor cell may provide a novel therapeutic approach to the treatment of osteopenic disorders.