Fibronectin (FN) fragments found in chronic inflammatory diseases, including periodontal disease and arthritis, may contribute to tissue destruction in part via induction of matrix metalloproteinases (MMPs). We previously showed that the 120-kDa FN fragment containing the central cell binding domain (120FN) dose dependently induces MMP-1 (collagenase-1) in human periodontal ligament (PDL) cells, whereas intact FN did not elicit this response. Recently, we found that an increase in MMP-1 expression is accompanied by a decreased osteoblastic phenotype in PDL cells. We hypothesized that 120FN inhibits osteoblastic differentiation of PDL cells by inducing MMP-1. Effects of increasing concentrations of 120FN on MMP-1 expression and on osteoblastic markers were assessed in cultured PDL cells using Western blotting, qRT-PCR, and collagen degradation and alkaline phosphatase (AP) activity assays. The 120FN dose dependently increased MMP-1 expression and activity, concomitant with a decrease in AP activity. The increase in collagenase activity was largely attributed to increased MMP-1 expression. Concurrent with the decrease in AP activity, the 120FN reduced baseline and dexamethasone-induced gene expression of specific osteoblastic markers, Runx2 and osteonectin, and diminished mineralized nodule formation. Finally, siRNA inhibition of 120FN-induced MMP-1 reduced collagenase expression and rescued the AP phenotype to baseline levels. These findings suggest that disease-associated 120FN, in addition to having direct effects on tissue destruction by upregulating MMPs, could contribute to disease progression by impeding osteoblastic differentiation of osteogenic PDL cells and, consequently, diminish bone regeneration.