The cyclin-dependent kinase (cdk) inhibitors are key regulators of cell cycle progression. p27 and p21 are members of the Cip/Kip family of cdk inhibitors and regulate cell growth by inactivating cell cycle stage-specific CDK-cyclin complexes. Because down-regulation of osteoprogenitor proliferation is a critical step for osteoblast differentiation, we investigated expression of p27 and p21 during development of the osteoblast phenotype in rat calvarial osteoblasts and in proliferating and growth-inhibited osteosarcoma ROS 17/2.8 cells. Expression of these proteins indicates that p21, which predominates in the growth period, is related to proliferation control. p27 levels are maximal postproliferatively, suggesting a role in the transition from cell proliferation to osteoblast differentiation. We directly examined the role of p27 during differentiation of osteoprogenitor cells derived from the bone marrow (BM) of p27-/- mice. BM cells from p27 null mice exhibited increased proliferative activity compared with BM cells from wild-type mice and formed an increased number and larger size of osteoblastic colonies, which further differentiated to the mineralization stage. Although p27-/- adherent marrow cells proliferate faster, they retain competency for differentiation, which may result, in part, from observed higher p21 levels compared with wild type. Histological studies of p27-/- bones also showed an increased cellularity in the marrow cavity compared with the p27+/+. The increased proliferation in bone does not lead to tumorigenesis, in contrast to observed adenomas in the null mice. Taken together, these findings indicate that p27 plays a key role in regulating osteoblast differentiation by controlling proliferation-related events in bone cells.