Bone marrow stroma contain pluripotential cells with the potential to differentiate into various mesenchymal cell lineages. We compared the effect of cortisol and bone morphogenetic protein-2 (BMP-2) on the differentiation of murine ST-2 stromal cells into mature osteoblasts or adipocytes. ST-2 cells were cultured for 3-27 days in the presence of 10% fetal bovine serum, 100 microg/mL ascorbic acid, and 5 mmol/L beta-glycerolphosphate in the presence or absence of cortisol at 1 micromol/L or BMP-2 at 1 nmol/L. Untreated ST-2 cells expressed high levels of alkaline phosphatase activity (APA) 15 days after confluence, and this was followed by the appearance of mineralized nodules after 24 days. BMP-2 accelerated and intensified the appearance of cells expressing APA and the presence of mineralized nodules. In contrast, cortisol decreased APA, prevented the formation of mineralized nodules, and induced a cellular phenotype characteristic of adipocytes. Untreated stromal cells expressed osteocalcin, Cbfa1, type I collagen, and alkaline phosphatase mRNA. BMP-2 increased osteocalcin and alkaline phosphatase mRNA, whereas cortisol suppressed their expression, as well as Cbfa1 and type I collagen transcripts. Cortisol enhanced, and BMP-2 downregulated, peroxisome proliferator-activated receptor gamma 2 and adipsin transcripts. The C/EBP transcription factors regulate genes critical for adipocytic and osteoblastic differentiation. Cortisol increased the expression of C/EBP alpha, beta, delta, and gamma mRNA levels, whereas BMP-2 had minor effects on C/EBP expression. In conclusion, BMP-2 accelerates the differentiation of stromal cells toward an osteoblastic phenotype, whereas glucocorticoids induce their differentiation toward an adipocytic phenotype.