Finkel-Biskis-Reilly (FBR) osteosarcoma virus v-Fos causes tumors of mesenchymal origin, including osteosarcomas, rhabdomyosarcomas, chondrosarcomas, and liposarcomas. Because the cell of origin in all these tumors is a pluripotent mesenchymal cell, the variety of tumors seen in mice which express FBR v-Fos implies that FBR v-Fos inhibits multiple differentiation pathways. To study the mechanism of FBR v-Fos' inhibition of mesenchymal differentiation, we utilized an in vitro model of adipocyte differentiation. We show by both morphological and biochemical means that FBR v-Fos inhibits adipocyte differentiation in vitro. This inhibition is due to FBR v-Fos' inhibition of the growth arrest characteristic of terminal differentiation and FBR v-Fos' inhibition of the expression and activity of a key regulator of this growth arrest, C/EBPalpha. The in vitro inhibition of adipogenesis by FBR v-Fos has in vivo significance as immunostaining of FBR v-Fos-induced tumors shows no CCAAT/enhancer binding protein (EBP)-alpha expression. These data implicate C/EBPalpha as a protein involved in the generation of liposarcomas.