Mesenchymal stem cells (MSCs), precursor cells resident in the bone marrow, have the capacity to differentiate into bone, cartilage, fat, and connective tissue. We have recently reported that MSCs from “healthy” donors differ from cells obtained from osteoporotic postmenopausal women in their proliferation rate, mitogenic response to osteogenic growth factors, and potential to mineralize. The purpose of this study was to examine the factors that explain the differential capacity of MSCs derived from “healthy” control and osteoporotic postmenopausal women to support mineralization. In addition, we examined the factors that regulate the differentiation of osteoporotic cells into adipocytes. For this purpose, we isolated MSCs from bone marrow of donors and analyzed the synthesis and deposition of type I collagen, the main component of bone extracellular matrix, the time course of gelatinolytic activity expression, the deposition of transforming growth factor β (TGF‐β), and the ability of cells to differentiate into adipocytes. Our results indicate that cells derived from osteoporotic donors synthesized 50% less type I collagen than normal cells and maintained higher levels of gelatinolytic activity under differentiation conditions (70% versus 15% after 14 days in culture). MSCs derived from osteoporotic women produced 60–65% less TGF‐β and expressed higher adipogenic capacity. We conclude that the capacity of MSCs derived from osteoporotic postmenopausal women to generate and maintain type I collagen‐rich extracellular matrix is decreased, favoring their adipogenic differentiation. These observations may explain the decreased mineralization previously observed in these types of cells. J. Cell. Biochem. 79:557–565, 2000. © 2000 Wiley‐Liss, Inc.