Isozymes of 11β‐hydroxysteroid dehydrogenase (11β‐HSD) act at a prereceptor level to regulate the tissue‐specific availability of active glu‐cocorticoids. To examine the effect of this on cell proliferation and differentiation, we have developed transfectant variants of a rat osteosarcoma cell line that express cDNA for 11β‐HSD1 (ROS 17/2.8β1) or 11β‐HSD2 (ROS 17/2.8β2). ROS 17/2.8β1 showed net conversion of cortisone to cortisol whereas ROS 17/2.8β2 showed only inactivation of cortisol to cortisone. There was no significant difference in glucocorticoid receptor (GR) expression between the different clones. However, in proliferation and differentiation studies, ROS 17/2.8β2 cells were completely resistant to cortisol. In contrast, ROS 17/2.8β1 were sensitive to both cortisone and cortisol. Expression of 11β‐HSD1 de‐creased cell proliferation whereas 11β‐HSD2 increased proliferation. These responses appear to be due to metabolism of endogenous serum glucocorticoids; proliferation of ROS 17/2.8β1 decreased further with exogenous cortisone or cortisol whereas ROS 17/2.8β2 were resistant to both compounds. The pro‐prolifera‐tive effects of 11β‐HSD2 were abrogated by 18β‐glycyrrhetinic acid, an 11β‐HSD inhibitor, and in cells transfected with cDNA encoding inactive 11β‐HSD 2. Data indicate that differential regulation of 11β‐HSD1 and 2 (rather than GR expression) is a key determinant of cell proliferation. Dysregulated expression of 11β‐HSD2 may be a novel feature of tumorigenesis.—Rabbitt, E. H., Lavery, G. G., Walker, E. A., Cooper, M. S., Stewart, P. M., Hewison, M. Prereceptor regulation of glucocorticoid action by 11β‐hydroxysteroid dehydrogenase: a novel determinant of cell proliferation. FASEB J. 16, 36–44 (2002)