Progressive osseous heteroplasia (POH) and fibrous dysplasia (FD) are genetic diseases of bone formation at opposite ends of the osteogenic spectrum: imperfect osteogenesis of the skeleton occurs in FD, while heterotopic ossification in skin, subcutaneous fat, and skeletal muscle forms in POH. POH is caused by heterozygous inactivating germline mutations in GNAS, which encodes G-protein subunits regulating the cAMP pathway, while FD is caused by GNAS somatic activating mutations. We used pluripotent mouse ES cells to examine the effects of Gnas dysregulation on osteoblast differentiation. At the earliest stages of osteogenesis, Gnas transcripts Gs α, XLαs and 1A are expressed at low levels and cAMP levels are also low. Inhibition of cAMP signaling (as in POH) by 2′,5′-dideoxyadenosine enhanced osteoblast differentiation while conversely, increased cAMP signaling (as in FD), induced by forskolin, inhibited osteoblast differentiation. Notably, increased cAMP was inhibitory for osteogenesis only at early stages after osteogenic induction. Expression of osteogenic and adipogenic markers showed that increased cAMP enhanced adipogenesis and impaired osteoblast differentiation even in the presence of osteogenic factors, supporting cAMP as a critical regulator of osteoblast and adipocyte lineage commitment. Furthermore, increased cAMP signaling decreased BMP pathway signaling, indicating that G protein-cAMP pathway activation (as in FD) inhibits osteoblast differentiation, at least in part by blocking the BMP-Smad pathway, and suggesting that GNAS inactivation as occurs in POH enhances osteoblast differentiation, at least in part by stimulating BMP signaling. These data support that differences in cAMP levels during early stages of cell differentiation regulate cell fate decisions.