During bone development, osteoblast differentiation requires remodeling of the extracellular matrix. Although underlying mechanisms have not been elucidated, evidence points to the participation of the nitric oxide (NO) and cyclic guanosine 3',5'-monophosphate (cGMP) system. Here, we detected increased matrix metalloproteinase (MMP)-13 mRNA, protein and activity, as well as increased inducible NO synthase (iNOS) and NO production during the differentiation of MC3T3-E1 osteoblasts. Transcriptional activity of the MMP-13 promoter was augmented by NO, 8-bromo-cGMP (8-Br-cGMP), and by a dominant-positive form of protein kinase G (PKG1-alpha). The stimulatory effect on the MMP-13 promoter was partially inhibited by mutation of the osteoblast-specific element 2 (OSE-2) binding site. Core binding factor-1 (Cbfa-1) expression peaked at 7 days of differentiation, and was phosphorylated by PKG in vitro. Cbfa-1 was localized to cell nuclei, and its translocation was inhibited by the iNOS inhibitor 1400W. Immunohistological examination revealed that MMP-13 and Cbfa-1 expression levels are both reduced in 17-day-old embryos of iNOS-deficient mice. Silencing of Cbfa-1 mRNA blocked MMP-13 expression without interfering with endogenous NO production, confirming its role in NO-induced MMP-13 expression by MC3T3-E1 cells. The results described here suggest a mechanism by which NO regulates osteogenesis.