In osteoporosis, bone loss is accompanied by greater adiposity in the marrow. Given the cellular proximity within the bone marrow, we wondered whether adipocytes might have a paracrine impact on osteoblast differentiation. To test this hypothesis, we cocultured adipocytes with osteoblasts derived from mesenchymal stem cells (MSCs) in the absence of direct cell contact and then analyzed gene expression changes in the osteoblastic population by using real-time reverse transcription polymerase chain reaction. We found that, upon coculture, MSC-derived osteoblasts showed appearance of adipogenic (lipoprotein lipase, leptin) and decrease of osteogenic (osteocalcin) mRNA markers. Our results indicate that in vitro, MSC-derived adipocytes are capable of inducing MSC-derived osteoblasts to differentiate to an adipocyte phenotype. These new data suggest that (i) transdifferentiation of committed osteoblasts into adipocytes may contribute to the increase in marrow fat content at the expense of bone-forming cells and (ii) this switch might be initiated by the adipocytes themselves.