The bone morphogenetic protein (BMP)-2 is a potent osteoinductive signal, inducing bone formation in vivo and osteoblast differentiation from non-osseous cells in vitro. The runt domain-related protein Cbfa1/PEBP2alphaA/AML-3 is a critical component of bone formation in vivo and transcriptional regulator of osteoblast differentiation. To investigate the relationship between the extracellular BMP-2 signal, Cbfa1, and osteogenesis, we examined expression of Cbfa1 and osteoblastic genes during the BMP-2 induced osteogenic transdifferentiation of the myoblastic cell line C2C12. BMP-2 treatment completely blocked myotube formation and transiently induced expression of Cbfa1 and the bone-related homeodomain protein Msx-2 concomitant with loss of the myoblast phenotype. While induction of collagen type I and alkaline phosphatase (AP) expression coincided with Cbfa1 expression, Cbfa1 mRNA was strikingly downregulated at the onset of expression of osteopontin (OPN) and osteocalcin (OCN) genes, reflecting the mature osteoblast phenotype. TGF-beta1 treatment effectively suppressed myogenesis and induced Cbfa1 expression but was insufficient to support osteoblast differentiation reflected by the absence of ALP, OPN, and OCN. We addressed whether induction of Cbfa1 in response to BMP-2 results in the transcriptional activation of the OC promoter which contains three enhancer Cbfa1 elements. Transfection studies show BMP-2 suppresses OC promoter activity in C2C12, but not in osteoblastic ROS 17/2.8 cells. Maximal suppression of OC promoter activity in response to BMP-2 requires sequences in the proximal promoter (up to nt -365) and may occur independent of the three Cbfa sites. Taken together, our results demonstrate a dissociation of Cbfa1 expression from development of the osteoblast phenotype. Our findings suggest that Cbfal may function transiently to divert a committed myoblast to a potentially osteogenic cell. However, other factors induced by BMP-2 appear to be necessary for complete expression of the osteoblast phenotype.