The membranous bones of the mammalian skull vault arise from discrete condensations of neural crest- and mesodermally-derived cells. Recently, a number of homeodomain transcription factors have been identified as critical regulators of this process. Here, we show that the homeoprotein engrailed 1 (EN1) is expressed during embryonic and perinatal craniofacial bone development, where it localizes to the skeletogenic mesenchyme, and, subsequently, to calvarial osteoblasts and osteoprogenitors. Mice lacking En1 exhibit generalized calvarial bone hypoplasia and persistent widening of the sutural joints. A reduction in calvarial membranous bone deposition and mineralization (osteopenia) is coupled to enhanced osteolytic resorption in En1 mutants. Consistent with these observations, expression of established osteoblast differentiation markers reveals that En1 function is required for both early and late phases of calvarial osteogenesis. Further analysis shows that EN1 regulates FGF signaling in calvarial osteoblasts. Moreover, EN1 indirectly influences calvarial osteoclast recruitment and bone resorption by regulating the expression of receptor activator of NFkappaB ligand (RANKL) in osteoblasts. Thus, during intramembranous bone formation, EN1 acts both cell autonomously and non-cell autonomously. In summary, this study identifies EN1 as a novel modulator of calvarial osteoblast differentiation and proliferation, processes that must be exquisitely balanced to ensure proper skull vault formation.