Wnt signaling plays an important role in the regulation of bone formation and bone mass. The mechanisms that regulate canonical Wnt signaling in osteoblasts are not fully understood. We show here a novel mechanism by which the adhesion molecule N-cadherin interacts with the Wnt coreceptor LRP5 and regulates canonical Wnt/beta-catenin signaling in osteoblasts. We demonstrate that N-cadherin, besides associating with beta-catenin at the membrane, forms a molecular complex with axin and LRP5 involving the LRP5 cytoplasmic tail domain. N-cadherin overexpression in osteoblasts increases N-cadherin-LRP5 interaction, causing increased beta-catenin degradation and altered TCF/LEF transcription in response to Wnt3a. This mechanism results in decreased osteoblast gene expression and osteogenesis in basal conditions and in response to Wnt3a. Consistent with a functional mechanism, silencing N-cadherin expression in control cells increases TCF/LEF transcription and enhances the response to Wnt3a. Using N-cadherin transgenic mice, we show that increased N-cadherin-LRP5 interaction resulting from targeted overexpression of N-cadherin in osteoblasts causes increased beta-catenin ubiquitination and results in cell-autonomous defective osteoblast function, reduced bone formation, and delayed bone mass acquisition. These data indicate that a previously unrecognized N-cadherin-axin-LRP5 interaction negatively regulates Wnt/beta-catenin signaling and is critical in the regulation of osteoblast function, bone formation, and bone mass.