The etiology of osteoporosis is multifactorial, but there is evidence from both animal and human studies that the volume of marrow adipose tissue increases when bone volume is reduced in osteoporosis. The cell-related mechanism that may account for this inverse relationship between the volume of marrow adipose tissue and bone remains to be clarified, although it is known that both adipocytes and osteoblasts are derived from stromal cells precursors in bone marrow. We report that retroviral transduction with a temperature-sensitive oncogene (SV40 large T antigen) can generate bipotential cell lines from human marrow stroma that are capable of directed differentiation, in vitro, down either an osteogenic or adipocytic lineage pathway. One such clone, designated hOP 7, expresses type alpha 1(I) procollagen and has low alkaline phosphatase (AP) activity under basal culture conditions that is reminiscent of an osteoprogenitor cell. Exposure of hOP 7 cells to dexamethasone upregulates AP activity and enables the cells to mineralize their extracellular matrix. Also, treatment with calcitriol induces osteocalcin expression and both PTH and PGE2 induce/augment cAMP formation. Incubation with normal rabbit serum, however, causes the cells to become adipogenic as demonstrated by histological staining with Oil-red-O, expression of mRNA for the early and late adipocyte markers lipoprotein lipase and glycerol 3-phosphate dehydrogenase, respectively, and loss of type alpha 1(I) procollagen mRNA. The generation of homogeneous populations of these cells, as confirmed by Southern blot analysis, demonstrates the capacity of a human clonal cell line to differentiate in either an osteogenic or adipogenic direction.