Expression of parathyroid hormone‐related protein (PTHrP) correlates with prostate cancer skeletal progression; however, the impact of prostate cancer‐derived PTHrP on the microenvironment and osteoblastic lesions in skeletal metastasis has not been completely elucidated. In this study, PTHrP overexpressing prostate cancer clones were stably established by transfection of full length rat PTHrP cDNA. Expression and secretion of PTHrP were verified by western blotting and IRMA assay. PTHrP overexpressing prostate cancer cells had higher growth rates in vitro, and generated larger tumors when inoculated subcutaneously into athymic mice. The impact of tumor‐derived PTHrP on bone was investigated using a vossicle co‐implant model. Histology revealed increased bone mass adjacent to PTHrP overexpressing tumor foci, with increased osteoblastogenesis, osteoclastogenesis and angiogenesis. In vitro analysis demonstrated pro‐osteoclastic and pro‐osteoblastic effects of PTHrP. PTHrP enhanced proliferation of bone marrow stromal cells and early osteoblast differentiation. PTHrP exerted a pro‐angiogenic effect indirectly, as it increased angiogenesis but only in the presence of bone marrow stromal cells. These data suggest PTHrP plays a role in tumorigenesis in prostate cancer, and that PTHrP is a key mediator for communication and interactions between prostate cancer and the bone microenvironment. Prostate cancer‐derived PTHrP is actively involved in osteoblastic skeletal progression. © 2008 Wiley‐Liss, Inc.