MEPE, 56.6 kDa protein isolated from tumors associated with hypophosphatemic osteomalacia, increases renal phosphate excretion and is expressed in normal human bone cells. AC-100, a central 23-amino acid fragment of MEPE, contains motifs that are important in regulating cellular activities in the bone microenvironment. Thus, we assessed in vitro effects of AC-100 on multipotential normal human marrow stromal (hMS) cells that have the capacity to differentiate into mature osteoblasts. Proliferation was quantified by [H3]thymidine uptake and cell counting and differentiation by the levels of mRNA for the alpha2-chain of type I procollagen (COL1A2), alkaline phosphatase (AP), and osteocalcin (OC) measured using real time reverse transcriptase PCR (RT-PCR) and by the formation of mineralized nodules. AC-100 increased proliferation by 257 +/- 89% (P < 0.005), increased gene expression of COL1A2 by 339 +/- 85% (P < 0.005), AP by 1,437 +/- 40% (P < 0.001), and OC by 1,962 +/- 337% (P < 0.001). In addition, it increased mineralized nodule formation by 81 +/- 14% (P < 0.001) in a dose- and time-dependent fashion. In equimolar dosages, the parent compound, MEPE, had the full activity of the AC-100 fragment. AC-100 elicited a comparable response to both IGF-I and BMP-2 with respect to proliferation and differentiation of hMS cells. Using gene expression microarray analysis, we demonstrated that AC-100 increased (by approximately 3-fold) the mRNA for cyclooxgenase-2 (COX-2), an inducible enzyme required for prostaglandin synthesis. Moreover, NS-398, a specific inhibitor of COX-2 action completely blocked AC-100-induced increases in proliferation and differentiation. Thus, AC-100 has potent anabolic activity on osteoblast precursor cells in vitro and these effects require the induction of COX-2.