Signaling through the IGF-I receptor by locally synthesized IGF-I or IGF-II is crucial for normal skeletal development and for bone remodeling. Osteogenesis is primarily regulated by bone morphogenetic proteins (BMPs), which activate gene expression programs driven by bone-specific transcription factors. In a mesenchymal stem cell model of osteoblast commitment and differentiation controlled by BMP2, we show that an inhibitor of PI3-kinase or a dominant-negative Akt were as potent in preventing osteoblast differentiation as the IGF binding protein IGFBP5, whereas a Mek inhibitor was ineffective. Conversely, an adenovirus encoding an inducible-active Akt was able to overcome the blockade of differentiation caused by IGFBP5 or the PI3-kinase inhibitor, and could restore normal osteogenesis. Inhibition of PI3-kinase or Akt did not block BMP2-mediated signaling, because the Smad-responsive genes Sox9 and JunB were induced normally under all experimental conditions. When activated during different stages of osteoblast maturation, dominant-negative Akt prevented accumulation of bone-specific alkaline phosphatase and reduced mineralization, and more significantly inhibited the longitudinal growth of metatarsal bones in primary culture by interfering with both chondrocyte and osteoblast development and function. We conclude that an intact IGF-induced PI3-kinase–Akt signaling cascade is essential for BMP2-activated osteoblast differentiation and maturation, bone development and growth, and suggest that manipulation of this pathway could facilitate bone remodeling and fracture repair.