Functions of bone morphogenetic proteins (BMPs) are initiated by signaling through specific type I and type II serine/threonine kinase receptors. In previous studies, we have demonstrated that the type IB BMP receptor (BMPR-IB) plays an essential and specific role in osteoblast commitment and differentiation. To determine the role of BMP receptor signaling in bone formation in vivo, we generated transgenic mice, which express a truncated dominant-negative BMPR-IB targeted to osteoblasts using the type I collagen promoter. The mice are viable and fertile. Tissue-specific expression of the truncated BMPR-IB was demonstrated. Characterization of the phenotype of these transgenic mice showed impairment of postnatal bone formation in 1-mo-old homozygous transgenic mice. Bone mineral density, bone volume, and bone formation rates were severely reduced, but osteoblast and osteoclast numbers were not significantly changed in the transgenic mice. To determine whether osteoblast differentiation is impaired, we used primary osteoblasts isolated from the transgenic mice and showed that BMP signaling is blocked and BMP2-induced mineralized bone matrix formation was inhibited. These studies show the effects of alterations in BMP receptor function targeted to the osteoblast lineage and demonstrate a necessary role of BMP receptor signaling in postnatal bone growth and bone formation in vivo.