Two of the most commonly used immunosuppressants, cyclosporine A and tacrolimus (FK506), inhibit the activity of a ubiquitously expressed Ca(2+)/calmodulin-sensitive phosphatase, calcineurin. Because both drugs also cause profound bone loss in humans and in animal models, we explored whether calcineurin played a role in regulating skeletal remodeling. We found that osteoblasts contained mRNA and protein for all isoforms of calcineurin A and B. TAT-assisted transduction of fusion protein TAT-calcineurin Aalpha into osteoblasts resulted in the enhanced expression of the osteoblast differentiation markers Runx-2, alkaline phosphatase, bone sialoprotein, and osteocalcin. This expression was associated with a dramatic enhancement of bone formation in intact calvarial cultures. Calcineurin Aalpha(-/-) mice displayed severe osteoporosis, markedly reduced mineral apposition rates, and attenuated colony formation in 10-day ex vivo stromal cell cultures. The latter was associated with significant reductions in Runx2, bone sialoprotein, and osteocalcin expression, paralleled by similar decreases in response to FK506. Together, the gain- and loss-of-function experiments indicate that calcineurin regulates bone formation through an effect on osteoblast differentiation.