The differentiation of adipocytic and osteogenic cells has been investigated in cultures of adult rat marrow stromal cells. Adipocytic differentiation was assessed using morphological criteria, changes in expression of procollagen mRNAs, consistent with a switch from the synthesis of predominantly fibrillar (types I and HI) to basement membrane (type IV) collagen, and the induction of expression of aP2, a specific marker for differentiation of adipocytes. Osteogenic differentiation was assessed on the basis of changes in the abundance of the mRNAs for the bone/liver/kidney isozyme of alkaline phosphatase and the induction of mRNAs for bone sialoprotein and osteocalcin. In the presence of foetal calf serum and dexamethasone (10⁻⁸ M) there was always differentiation of both adipocytic and osteogenic cells. When the steroid was present throughout primary and secondary culture the differentiation of osteogenic cells predominated. Conversely, when dexamethasone was present in secondary culture only, the differentiation of adipocytes predominated. When marrow stromal cells were cultured in the presence of dexamethasone in primary culture and dexamethasone and 1,25-dihydroxyvitamin D₃ (1,25(OH)₂D₃; 10⁻⁸ M) in secondary culture, the differentiation of adipocytes was inhibited whereas the differentiation of osteogenic cells was enhanced, as assessed by an increase in expression of osteocalcin mRNA. The results, therefore, demonstrate an inverse relationship between the differentiation of adipocytic and osteogenic cells in this culture system and are consistent with the possibility that the regulation of adipogenesis and osteogenesis can occur at the level of a common precursor in vivo.