Bone formation is a carefully controlled developmental process involving morphogen-mediated patterning signals that define areas of initial mesenchyme condensation followed by induction of cell-specific differentiation programs to produce chondrocytes and osteoblasts. Positional information is conveyed via gradients of molecules, such as Sonic Hedgehog that are released from cells within a particular morphogenic field together with region-specific patterns of hox gene expression. These, in turn, regulate the localized production of bone morphogenetic proteins and related molecules which initiate chondrocyte- and osteoblast-specific differentiation programs. Differentiation requires the initial commitment of mesenchymal stem cells to a given lineage, followed by induction of tissue-specific patterns of gene expression. Considerable information about the control of osteoblast-specific gene expression has come from analysis of the promoter regions of genes encoding proteins like osteocalcin that are selectively expressed in bone. Both general and tissue-specific transcription factors control this promoter. Osf2/Cbfa1, the first osteoblast-specific transcription factor to be identified, is expressed early in the osteoblast lineage and interacts with specific DNA sequences in the osteocalcin promoter essential for its selective expression in osteoblasts. The OSF2/CBFA1 gene is necessary for the development of mineralized tissues, and its mutation causes the human disease, cleidocranial dysplasia. Committed osteoprogenitor cells already expressing Osf2/Cbfa1 must synthesize a collagenous ECM before they will differentiate. A cell:ECM interaction mediated by integrin-type cell-surface receptors is essential for the induction of osteocalcin and other osteoblast-related proteins. This interaction stimulates the binding of Osf2/Cbfa1 to the osteocalcin promoter through an as-yet-undefined mechanism.