Bone loss with aging results from attenuated and unbalanced bone turnover, and is associated with a decreased number of bone-forming osteoblasts, increased number of bone-resorbing osteoclasts, and increased number of fat cells, adipocytes, in the bone marrow. Osteoblasts and adipocytes originate from marrow-derived mesenchymal stroma/stem cells (MSCs). The milieu of intracellular and extracellular signals controls MSC lineage allocation. Emerging evidence indicates that the adipocyte-specific transcription factor peroxisome proliferator- activated receptor-gamma (PPAR-y)acts as a positive regulator of marrow adipocyte formation and negative regulator of osteoblast development. In vivo, increased activity of PPAR-y leads to bone loss, similar to bone loss with aging, whereas its decreased activity results in increased bone mass. The pro-adipocytic and the anti- osteoblastic properties of PPAR-y are determined by the type of ligand and can be distinguished, suggesting separate mechanisms by which PPAR-y controls bone mass and fat mass in bone. During aging, the status of MSCs changes with respect to both their intrinsic differentiation potential and production of signaling molecules that contribute to the formation of a specific marrow micro-environment. The expression of PPAR-yand production of its natural activators (e.g., oxidized fatty acids) increases, suggesting increased activity of this nuclear receptor. Increased activity of PPAR-^y down-regulates the expression and activity of multiple regulatory pathways, including Wnt, TGF-p, and IGF-1, suggesting the role of this transcription factor in the regulation of the extrinsic signaling milieu. We propose that age-related bone loss results from the increased anti-osteoblastic activity of PPAR-y, which results in both intrinsic changes in the differentiation of MSCs and a decrease in pro-osteoblastic signaling in the marrow micro-environment. The following Specific Aims will test this hypothesis: Aim 1: Determine regulatory mechanisms by which PPAR-y2 suppresses osteoblast differentiation during aging. Aim 2: Determine the effects of PPAR-y-controlled intracellular mechanisms and microenvironmental changes on bone formation with the model of distraction osteogenesis (DO). An understanding of the effects of aging on the interrelationship between MSC differentiation potential and the modulatory effects of the bone marrow environment on this process is the starting point for the development of successful therapies for osteoporosis that will specifically target bone and bone marrow stem cells. Completion of the above aims should enable us to determine the role of PPAR-y in this process and will allow designing therapeutic interventions that will selectively block PPAR-y anti-osteoblastic activity.