Mesenchymal cells are able to differentiate into several distinct cell types, including osteoblasts and adipocytes. The commitment to a particular lineage may be regulated by specific transcription factors. Peroxisome proliferator-activated receptor-gamma (PPARgamma), acting in conjunction with CCAAT/enhancer-binding protein-alpha, has been suggested as a key regulator of adipogenic differentiation. Previous studies have shown that the activation of PPARgamma in osteoblasts suppresses osteoblast differentiation and the expression of osteocalcin, an osteoblast-specific protein. However, the mechanism of this inhibition remains unclear. We investigated the effect of PPARgamma activation on the expression of osteocalcin and analyzed the molecular mechanism. Mouse osteoblastic MC3T3-E1 cells expressed PPARgamma, which was transcriptionally active, whereas rat osteosarcoma ROS 17/2.8 cells did not. Treatment of MC3T3-E1 osteoblasts and ROS 17/2.8 cells stably transfected with PPARgamma2 with the PPARgamma activator 15-deoxy-Delta12,14-prostaglandin J2 inhibited the mRNA expression of osteocalcin and Runx2, the latter of which is a key transcription factor in osteoblast differentiation. This decreased expression of osteocalcin and Runx2 was partly explained by the decreased level of Runx2 resulting from the suppressed transcription from the Runx2 promoter. However, in addition to this indirect effect, the activation of PPARgamma by 15-deoxy-Delta12,14-prostaglandin J2 directly suppressed the Runx2-mediated induction of the activities of the osteocalcin promoter and the artificial promoter p6OSE2, which contains six tandem copies of osteoblast-specific element-2, the Runx2-binding promoter sequence. This inhibition was mediated by a physical interaction between PPARgamma and Runx2 and the subsequent repression of the transcriptional activity at the osteoblast-specific element-2 sequence. Thus, this study demonstrates that the activation of PPARgamma inhibits osteocalcin expression both by suppressing the expression of Runx2 and by interfering with the transactivation ability of Runx2.