Almost all tumors are characterized by both architectural and cellular abnormalities in differentiation. Osteoblast development is relatively well understood, making osteosarcoma a good model for understanding how tumorigenesis perturbs normal differentiation. We argue that there are two key transition points in normal cellular differentiation that are the focus of oncogenic events, in both of which epigenetic processes are critical. The first is the transition from an uncommitted pluripotent precursor (mesenchymal stem cell) to the ‘transit‐amplifying compartment’ of the osteoblast lineage. This transition, normally exquisitely regulated in space and time, is abnormal in cancer. The second involves termination of lineage expansion, equally tightly regulated under normal circumstances. In cancer, the mechanisms that mandate eventual cessation of cell division are almost universally disrupted. This model predicts that key differentiation genes in bone, such as RUNX2, act in an oncogenic fashion to initiate entry into a proliferative phase of cell differentiation, and anti‐oncogenically into the post‐mitotic state, resulting in ambivalent roles in tumorigenesis. Polycomb genes exemplify epigenetic processes in the stem cell compartment and tumorigenesis, and are implicated in skeletal development in vivo. The epigenetic functions of the retinoblastoma protein, which plays a key role in tumorigenesis in bone, is discussed in the context of terminal cell cycle exit. J. Cell. Biochem. 98: 757–769, 2006. © 2006 Wiley‐Liss, Inc.