Continuous fibroblast growth factor signaling inhibits the differentiation of primary osteoblasts and osteoblastic cell lines. We studied the expression of several cell cycle regulatory molecules in response to fibroblast growth factor, and found that fibroblast growth factor strongly upregulates the expression of p21(WAF1/CIP1), a CDK inhibitor that has also been implicated in the regulation of apoptosis and cell differentiation. To test the hypothesis that p21 mediated the fibroblast growth factor effects on osteoblasts, we studied the differentiation of primary osteoblasts and osteoblastic cell lines derived from p21 null mice in the presence or absence of fibroblast growth factor. While the results obtained indicate that p21 is not the major mediator of the inhibition of osteoblast differentiation by fibroblast growth factor, we found that p21 per se acts as a brake on osteoblast proliferation and differentiation. p21 is strongly downregulated during differentiation and is highly expressed in osteoblastic cell lines expressing activated FGFR2, which do not differentiate. p21 null osteoblasts differentiate faster than wild-type cells, are more susceptible to the differentiation-promoting action of BMP-2, and undergo increased differentiation-related apoptosis. Furthermore, transient overexpression of p21 from an adenovirus vector delayed the onset of differentiation both in wild-type and in p21 null osteoblasts. These results highlight a new function for p21 in osteoblast differentiation.