Although 17 beta-estradiol (E2) replacement therapy has been shown to be effective in treating postmenopausal osteoporosis, the underlying mechanism remains unclear. The presence of low levels of functional endogenous estrogen receptor (ER) in some osteoblastic cells has been demonstrated, and the suggestion that the abundance of ER may be rate-limiting in the action of E2 on these cells has been made. To study the mechanism of ER in regard to E2-mediated effects, we stably transfected a human osteosarcoma cell line, SaOS-2, with an expression vector, pMV-7-ER, containing the human ER gene. We characterized six of the stably transfected clones. One of the stable clones, SaOS-2-ER, expressed extra copies of ER genes integrated into the genome as detected by Southern blot analysis, showed a significantly increased level of ER mRNA by RT-PCR, and contained an increased level of ER cytosolic protein as detected by an ER-specific EIA. The overexpressed ER was functional and sensitive to E2 in a dose-dependent fashion after transient transfection with a vector containing an estrogen response element (ERE) linked to a chloramphenicol acetyltransferase (CAT) reporter gene. Scatchard analysis revealed a single high-affinity binding site with a Kd similar to values obtained for the ER in MCF-7 breast cancer cells. These SaOS-2-ER cells had altered osteoblast phenotypic features including growth inhibition, decreased basal alkaline phosphatase activity, and decreased IL-6 expression and secretion. In response to E2, a greater than 2-fold increase in TGF-beta 1 mRNA was quantitatively measured in these ER-overexpressing osteoblasts. These cells may provide a sensitive and unique model for understanding the mechanism of E2 and ER in overall bone metabolism.