Type 2 diabetes is associated with increased fracture risk and delayed facture healing; the underlying mechanism, however, remains poorly understood. We systematically investigated skeletal pathology in leptin receptor–deficient diabetic mice on a C57BLKS background (db). Compared with wild type (wt), db mice displayed reduced peak bone mass and age-related trabecular and cortical bone loss. Poor skeletal outcome in db mice contributed high-glucose– and nonesterified fatty acid–induced osteoblast apoptosis that was associated with peroxisome proliferator–activated receptor γ coactivator 1-α (PGC-1α) downregulation and upregulation of skeletal muscle atrogenes in osteoblasts. Osteoblast depletion of the atrogene muscle ring finger protein-1 (MuRF1) protected against gluco- and lipotoxicity-induced apoptosis. Osteoblast-specific PGC-1α upregulation by 6-C-β-d-glucopyranosyl-(2S,3S)-(+)-5,7,3′,4′-tetrahydroxydihydroflavonol (GTDF), an adiponectin receptor 1 (AdipoR1) agonist, as well as metformin in db mice that lacked AdipoR1 expression in muscle but not bone restored osteopenia to wt levels without improving diabetes. Both GTDF and metformin protected against gluco- and lipotoxicity-induced osteoblast apoptosis, and depletion of PGC-1α abolished this protection. Although AdipoR1 but not AdipoR2 depletion abolished protection by GTDF, metformin action was not blocked by AdipoR depletion. We conclude that PGC-1α upregulation in osteoblasts could reverse type 2 diabetes–associated deterioration in skeletal health.