Cystatin C (CysC) is a natural cysteine proteinase inhibitor that suppresses the differentiation and bone-resorptive function of osteoclasts. By contrast, the effect of CysC on the differentiation and bone-formative function of osteoblasts has not been elucidated thoroughly. We examined the effects of CysC on mouse osteoblastic cells using in vitro cultures from bone marrow and calvaria and ex vivo calvarial cultures. CysC-stimulated cells showed increased alkaline phosphatase (ALP) activity, mineralization of the new bone matrix, and calvarial bone formation. The cells treated with CysC immunodepleted by anti-CysC antibody (iCysC) and a chemical papain-like cysteine proteinase inhibitor, E-64, did not induce mineralization. Elevated mRNA levels of bone morphogenetic protein (BMP)-2, the differentiation marker osteocalcin, and a master osteogenic transcription factor, Runx2, were observed in CysC-treated cells. These results suggest that CysC affects the BMP signaling cascades in osteoblastic cells and then promotes osteoblast differentiation, mineralization, and bone formation.