Bone loss and increased marrow adiposity are hallmarks of aging skeletons. Conditional deletion of histone deacetylase 3 (Hdac3) in murine osteochondroprogenitor cells causes osteopenia and increases marrow adiposity, even in young animals, but the origins of the increased adiposity are unclear. To explore this, bone marrow stromal cells (BMSCs) from Hdac3-depleted and control mice were cultured in osteogenic medium. Hdac3-deficient cultures accumulated lipid droplets in greater abundance than control cultures and expressed high levels of genes related to lipid storage (Fsp27/Cidec, Plin1) and glucocorticoid metabolism (Hsd11b1) despite normal levels of Pparγ2. Approximately 5% of the lipid containing cells in the wild-type cultures expressed the master osteoblast transcription factor Runx2, but this population was threefold greater in the Hdac3-depleted cultures. Adenoviral expression of Hdac3 restored normal gene expression, indicating that Hdac3 controls glucocorticoid activation and lipid storage within osteoblast lineage cells. HDAC3 expression was reduced in bone cells from postmenopausal as compared to young women, and in osteoblasts from aged as compared to younger mice. Moreover, phosphorylation of S424 in Hdac3, a posttranslational mark necessary for deacetylase activity, was suppressed in osseous cells from old mice. Thus, concurrent declines in transcription and phosphorylation combine to suppress Hdac3 activity in aging bone, and reduced Hdac3 activity in osteochondroprogenitor cells contributes to increased marrow adiposity associated with aging.