The increase in marrow adipogenesis associated with osteoporosis and age-related osteopenia is well known clinically. However, we are only now beginning to understand the mechanisms that control the differentiation of mesenchymal stem cells to either osteoblasts or adipocytes. Recent work with gene silencing and overexpression has provided insight into critical pathways that determine the fate of these multipotential cells. One of these pathways - that of the nuclear hormone receptor peroxisome proliferator activated receptor-gamma - when activated, promotes adipogenesis and inhibits osteogenesis. This in vitro mechanism of action has been confirmed in vivo using ligands to this receptor. Discovery of this and other targets and pathways, such as Wnt signaling, notch/delta/jagged ligands and receptors, and RhoA gene expression, provides new insights into mesenchymal stem cell differentiation. These pathways provide exciting future pharmacological targets with which to enhance bone formation and therefore reduce the risk of fracture.