Mice deficient in the Msx2 gene manifest defects in skull ossification and a marked reduction in bone formation associated with decreases in osteoblast numbers, thus suggesting that Msx2 is involved in bone formation. However, the precise role of Msx2 during osteoblast differentiation is not fully understood. In the present study, we investigated the role of Msx2 in the regulation of osteoblast differentiation in the multipotent mesenchymal cell lines C3H10T1/2 and C2C12 and in murine primary osteoblasts. Introduction of Msx2 induced alkaline phosphatase activity in C3H10T1/2 and C2C12 cells and promoted the calcification of murine primary osteoblasts. This effect of Msx2 was also observed in mesenchymal cells isolated from Runx2-deficient mice. Interestingly the expression of Msx2 was induced by bone morphogenetic protein 2 treatment in Runx2-deficient mesenchymal cells. In contrast, Msx2 diminished peroxisome proliferator-activated receptor gamma (PPARgamma) expression and adipogenesis of the preadipocytic cell line 3T3-F442A. Moreover Msx2 inhibited the transcriptional activity of PPARgamma, CCAAT/enhancer-binding protein beta (C/EBPbeta), and C/EBPdelta and blocked adipocyte differentiation of mesenchymal cells induced by overexpression of PPARgamma, C/EBPalpha, C/EBPbeta, or C/EBPdelta. These data indicate that Msx2 promotes osteoblast differentiation independently of Runx2 and negatively regulates adipocyte differentiation through inhibition of PPARgamma and the C/EBP family.