In order to study osteoblast differentiation we subcloned a cell derived from a mouse a bone marrow stromal cell line, Kusa O, and obtained a number of clones representative of three different phenotypes. One that neither differentiated into osteoblasts nor into adipocytes, a second that differentiated into osteoblasts but not adipocytes, and a third that differentiated into both osteoblasts and adipocytes. Four subclones were selected for further characterization according to their ability to mineralize and/or differentiate into adipocytes. The non‐mineralizing clone had no detectable alkaline phosphatase activity although some alkaline phosphatase mRNA was detected after 21 days in osteoblast differentiating medium. Alkaline phosphatase activity and mRNA in the three mineralizing clones were comparable with the parent clones. Osteocalcin mRNA and protein levels in the non‐mineralizing clone were low and non‐detectable, respectively, while both were elevated in the parent cells and mineralizing subclones after 21 days in differentiating medium. PTH receptor mRNA and activity increased in the four subclones and parent cells with differentiation. mRNA for two other osteoblast phenotypic markers, osteopontin and bone sialoprotein, were similarly expressed in the parent cells and subclones while mRNAs for the transcription factors, Runx2 and osterix, were detectable in both parent and subclone cells. Runx2 was unchanged with differentiation while osterix was increased. Interestingly, PPARγ mRNA expression did not correlate with cell line potential to differentiate into adipocytes. Indian hedgehog mRNA and its receptor (patched) mRNA levels both increased with differentiation while mRNA levels of the Wnt pathway components β‐catenin and dickkopf also increased with differentiation. Although we have focussed on characterizing these clones from the osteoblast perspective it is clear that they may be useful for studying both osteoblast and adipocyte differentiation as well as their transdifferentiation. J. Cell. Biochem. 90: 158–169, 2003. © 2003 Wiley‐Liss, Inc.