Mesenchymal stem cells (MSCs) possess the capability to differentiate into bone forming cells, osteoblasts, and thus represent a new therapeutic tool in regenerative medicine. Transforming growth factor (TGF)-beta is abundantly present in bone tissue where it regulates osteoblast and osteoclast functions in a complex manner. Latent TGF-beta binding protein (LTBP)-1 mediates the extracellular matrix (ECM) targeting and accumulation of most TGF-beta in the bone. We describe here an important regulatory role for LTBP-3 in TGF-beta activation and autocrine growth control in MSCs. LTBP-3 knockdown via siRNA mediated silencing resulted in reduced cell proliferation and reduced osteogenic differentiation. When MSCs were induced to undergo differentiation, LTBP-3 levels became downregulated in parallel with reduced TGF-beta activation. These changes coincided with the matrix maturation phase of osteogenic differentiation. The mechanism of LTBP-3 is most likely via TGF-beta activation in the early proliferative phase of the differentiation process. Later, when TGF-beta activity would inhibit further maturation and mineralization, LTBP-3 expression becomes downregulated and LTBP-1 containing large latent TGF-beta1 complexes accumulate into the ECM. These complexes represent readily available targets for osteoclast mediated release and activation of TGF-beta in bone tissue. Our results provide evidence that LTBP isoforms can differentially regulate TGF-beta activation and ECM accumulation during osteogenic differentiation.