Because regulation of the differentiation to osteoblasts and adipocytes from a common progenitor in bone marrow stroma is poorly understood, we assessed effects of bone morphogenetic protein-2 (BMP-2) on a conditionally immortalized human marrow stromal cell line, hMS(2-6), which is capable of differentiation to either lineage. BMP-2 did not affect hMS(2-6) cell proliferation but enhanced osteoblast differentiation as assessed by a 1.8-fold increase in expression of OSF2/CBFA1 (a gene involved in commitment to the osteoblast pathway), by increased mRNA expression and protein secretion for alkaline phosphatase (ALP), type I procollagen and osteocalcin (OC) (except for OC protein), and by increased mineralized nodule formation. Transient transfection with Osf2/Cbfa1 antisense oligonucleotide substantially reduced BMP-2-stimulated expression of ALP mRNA and protein. The effects of BMP-2 on adipocyte differentiation varied: expression of peroxisome proliferator-activated receptor gamma2 (a gene involved in commitment to the adipocyte pathway) was unchanged, mRNA expression of the early differentiation marker, lipoprotein lipase, was increased, and mRNA and protein levels of the late differentiation marker, leptin, and the formation of cytoplasmic lipid droplets were decreased. Thus, by enhancing osteoblast commitment and by inhibiting late adipocyte maturation, BMP-2 acts to shunt uncommitted marrow stromal precursor cells from the adipocyte to the osteoblast differentiation pathway.