Wnt signaling is essential for osteogenesis and also functions as an adipogenic switch, but it is not known if interrupting wnt signaling via knockout of β‐catenin from osteoblasts would cause bone marrow adiposity. Here, we determined whether postnatal deletion of β‐catenin in preosteoblasts, through conditional cre expression driven by the osterix promoter, causes bone marrow adiposity. Postnatal disruption of β‐catenin in the preosteoblasts led to extensive bone marrow adiposity and low bone mass in adult mice. In cultured bone marrow–derived cells isolated from the knockout mice, adipogenic differentiation was dramatically increased, whereas osteogenic differentiation was significantly decreased. As myoblasts, in the absence of wnt/β‐catenin signaling, can be reprogrammed into the adipocyte lineage, we sought to determine whether the increased adipogenesis we observed partly resulted from a cell‐fate shift of preosteoblasts that had to express osterix (lineage‐committed early osteoblasts), from the osteoblastic to the adipocyte lineage. Using lineage tracing both in vivo and in vitro we showed that the loss of β‐catenin from preosteoblasts caused a cell‐fate shift of these cells from osteoblasts to adipocytes, a shift that may at least partly contribute to the bone marrow adiposity and low bone mass in the knockout mice. These novel findings indicate that wnt/β‐catenin signaling exerts control over the fate of lineage‐committed early osteoblasts, with respect to their differentiation into osteoblastic versus adipocytic populations in bone, and thus offers potential insight into the origin of bone marrow adiposity. © 2012 American Society for Bone and Mineral Research.