Osteoblasts are derived from mesenchymal progenitors. Differentiation to osteoblasts and adipocytes is reciprocally regulated. Transcriptional coactivator with a PDZ-binding motif (TAZ) is a transcriptional coactivator that induces differentiation of mesenchymal cells into osteoblasts while blocking differentiation into adipocytes. To investigate the role of TAZ on bone metabolism in vivo, we generated transgenic mice that overexpress TAZ under the control of the procollagen type 1 promoter (Col1-TAZ). Whole body bone mineral density (BMD) of 6- to 19-week-old Col-TAZ mice was 4% to 7% higher than that of their wild-type (WT) littermates, whereas no difference was noticed in Col.1-TAZ female mice. Microcomputed tomography analyses of proximal tibiae at 16 weeks of age demonstrated a significant increase in trabecular bone volume (26.7%) and trabecular number (26.6%) with a reciprocal decrease in trabecular spacing (14.2%) in Col1-TAZ mice compared with their WT littermates. In addition, dynamic histomorphometric analysis of the lumbar spine revealed increased mineral apposition rate (42.8%) and the serum P1NP level was also significantly increased (53%) in Col.1-TAZ mice. When primary calvaria cells were cultured in osteogenic medium, alkaline phosphatase (ALP) activity was significantly increased and adipogenesis was significantly suppressed in Col1-TAZ mice compared with their WT littermates. Quantitative real-time polymerase chain reaction analyses showed that expression of collagen type 1, bone sialoprotein, osteocalcin, ALP, osterix, and Runx2 was significantly increased in calvaria cells from Col1-TAZ mice compared to their WT littermates. In vitro, TAZ enhanced Runx2-mediated transcriptional activity while suppressing the peroxisome proliferator-activated receptor gamma signaling pathway. TAZ also enhanced transcriptional activity from 3TP-Lux, which reflects transforming growth factor-beta (TGF-β)-mediated signaling. In addition, TAZ enhanced TGF-β-dependent nuclear translocation of Smad2/3 and Smad4. Taken together, these results suggest that TAZ positively regulates bone formation in vivo, which seems to be mediated by enhancing both Runx2 and TGF-β signaling.