Prostaglandin E₂ (PGE₂) possesses significant anabolic properties when administered systemically (i.e., it increases bone formation and, consequently, bone mass). We recently characterized the effects of a 3 week administration of 6 mg/kg PGE₂ into young rats and showed it increases cortical and cancellous bone mass and mechanical strength in long bones and bone density in the calvaria. We also found that a single dose of PGE₂ induces the expression of early-response genes (c-fos, c-jun, and egr-1) in bone marrow cells within these two types of bone. These observations, together with findings by others of new cancellous bone formation in PGE₂-treated animals, suggested that recruitment of osteoblasts from their precursors is a major mechanism of the anabolic effect of PGE₂. To test this hypothesis directly, we injected PGE₂ (6 mg/kg) or vehicle into 4-week-old rats for 2 weeks and then assessed the osteogenic potential of bone marrow in an ex vivo culture system. Primary and first-passage bone marrow cultures were established in the presence of β-glycerophosphate, ascorbate, and dexamethasone, and osteogenic differentiation was measured by bone nodule formation and alkaline phosphatase activity. This regimen increased bone mass expressed as femoral ash weight by 4.7% and tibial cancellous bone area by 38.3%. Nodule formation at 21 days was increased in both primary and first-passage cultures from PGE₂-treated rats despite seeding of the same number of marrow cells. Alkaline phosphatase activity was elevated in both primary and first-passage cultures from PGE₂-treated rats beginning 6–10 days after culture initiation. Cell proliferation was only slightly elevated in cultures from PGE₂-treated rats. These data strongly suggest that in vivo administration of PGE₂ induces the proliferation or differentiation of osteoprogenitor cells in bone marrow, and this effect takes a major part in its anabolic effect in vivo.