Mesenchymal stem cells (MSCs) can differentiate into multiple cell lineages, including osteoblasts and adipocytes. We reported previously that glucocorticoid-induced leucine zipper (GILZ) inhibits peroxisome proliferator-activated receptor ␥-2 (Ppar␥2) expression and blocks adipocyte differentiation. Here we show that overexpression of GILZ in mouse MSCs, but not MC3T3-E1 osteoblasts, increases alkaline phosphatase activity and enhances mineralized bone nodule formation, whereas knockdown of Gilz reduces MSC osteogenic differentiation capacity. Consistent with these observations, real-time reverse transcription-PCR analysis showed that both basal and differentiation-induced transcripts of the lineage commitment gene Runx2/Cbfa1, as well as osteoblast differentiation marker genes including alkaline phosphatase, type I collagen, and osteocalcin, were all increased in GILZ-expressing cells. In contrast, the mRNA levels of adipogenic Ppar␥2 and C/ebp␣ were significantly reduced in GILZ-expressing cells under both osteogenic and adipogenic conditions. Together, our results demonstrate that GILZ functions as a modulator of MSCs and that overexpression of GILZ shifts the balance between osteogenic and adipogenic differentiation of MSCs toward the osteogenic pathway. These data suggest that GILZ may have therapeutic value for stem cell-based therapies of metabolic bone diseases, such as fracture repair.Bone marrow-derived mesenchymal stem cells (MSCs) 3 are pluripotent and can give rise to several distinct cell lineages, such as osteoblasts, adipocytes, chondrocytes, myocytes, and even neurons under appropriate conditions (1-4). Increasing evidence has shown that adipocytes and osteoblasts are two major pathways and that the relationship between these two is reciprocal, i.e. when the adipogenic pathway is blocked, the MSCs enter the osteogenic pathway, and vice versa (5-9). Thus, balanced MSC osteoblast and adipocyte differentiation is critical for the maintenance of healthy bone and lean body composition, and understanding of the mechanisms by which this balance is modulated will have significant medical implications in stem cell-based therapies. We reported previously that a glucocorticoid (GC)-inducible protein, called GC-induced leucine zipper (GILZ) (10), can inhibit the transcription of a key adipogenic regulator, peroxisome proliferator-activated receptor ␥-2 (Ppar␥2), and blocks adipocyte differentiation of 3T3-L1 cells (11). Gilz is a new member of the leucine zipper protein family and belongs to the transforming growth factor -stimulated clone-22 (Tsc-22) family of transcription factors (12, 13). Members of this family contain three distinct domains: an N terminus TSC box, a middle leucine zipper domain, and a C terminus proline-rich domain. GILZ has been shown to interact with and inhibit the activities of the key inflammatory signaling mediators 15). GILZ can also interact with the mitogen-activated protein kinase family member, Raf1, resulting in inhibition of Raf-1 phosphorylation and, subsequently, inh...