We examined the effect of PTH-related peptide (PTHrP) on modulating adipogenesis and osteoblastogenesis in the pluripotent mesenchymal cell line C3H10T½. These cells express the type 1 PTH/PTHrP receptor, thereby allowing PTHrP to inhibit bone morphogenetic protein 2 (BMP2) from enhancing gene expression of peroxisome proliferator-activated receptor γ and the adipocyte-specific protein aP2 and from augmenting the accumulation of lipid. In the presence of BMP2, PTHrP or a protein kinase C (PKC) stimulator (phorbol ester) increased the expression of indexes of the osteoblast phenotype, including alkaline phosphatase, type I collagen, and osteocalcin, whereas a PKC inhibitor (chelerythrin chloride) inhibited PTHrP action. PTHrP and a phorbol ester increased gene expression of the BMP IA receptor, and both enhanced BMP2-dependent increases in promoter activity of the signaling molecule SMAD6. Overexpression of the BMP IA receptor facilitated the capacity of BMP2 to increase osteoblastogenesis in the absence of PTHrP and a dominant negative BMP IA receptor variant inhibited this effect of BMP2. These results demonstrate that PTHrP can direct osteoblastic, rather then adipogenic, commitment of mesenchymal cells, implicate PKC signaling in this activity, and show that PTHrP action involves enhanced gene expression of the BMP IA receptor, which facilitates BMP2 action in enhancing osteoblastogenesis in pluripotent mesenchymal cells.