Interferon (IFN)gamma is a strong inhibitor of osteoclast differentiation and activity. However, its role in osteoblastogenesis has not been carefully examined. Using microarray expression analysis, we found that several IFNgamma-inducible genes were upregulated during early phases of osteoblast differentiation of human mesenchymal stem cells (hMSCs). We therefore hypothesized that IFNgamma may play a role in this process. We first observed a strong and transient increase in IFNgamma production following hMSC induction to differentiate into osteoblasts. We next blocked this endogenous production using a knockdown approach with small interfering RNA and observed a strong inhibition of hMSC differentiation into osteoblasts with a concomitant decrease in Runx2, a factor indispensable for osteoblast development. Additionally, exogenous addition of IFNgamma accelerated hMSC differentiation into osteoblasts in a dose-dependent manner and induced higher levels of Runx2 expression during the early phase of differentiation. We next examined IFNgamma signaling in vivo in IFNgamma receptor 1 knockout (IFNgammaR1(-/-)) mice. Compared with their wild-type littermates, IFNgammaR1(-/-) mice exhibited a reduction in bone mineral density. As in the in vitro experiments, MSCs obtained from IFNgammaR1(-/-) mice showed a lower capacity to differentiate into osteoblasts. In summary, we demonstrate that the presence of IFNgamma plays an important role during the commitment of MSCs into the osteoblastic lineage both in vitro and in vivo, and that this process can be accelerated by exogenous addition of IFNgamma. These data therefore support a new role for IFNgamma as an autocrine regulator of hMSC differentiation and as a potential new target of bone-forming cells in vivo.