Mesenchymal stem cells (MSCs), also known as multipotent stromal cells, are used in clinical trials. However, the use of MSCs for medical treatment of patients poses a potential problem due to the possibility of transdifferentiation into unwanted tissues. Disruption of the balance during MSC differentiation leads to obesity, skeletal fragility, and osteoporosis. Differentiation of MSCs into either adipocytes or osteoblasts is transcriptionally regulated by the two key transcription factors PPARc 2 and Runx2. PPARc 2 is highly expressed during adipocyte differentiation and regulates expression of genes involved in adipogenesis. Runx2 induces osteogenic gene expression and, thereby, increases osteoblast differentiation. Although transcriptional modulation of PPARc 2 has been investigated in adipogenesis, the underlying molecular mechanisms to control the balance between adipogenesis and osteogenesis in MSCs remain unclear. In this study, the role of sLZIP in regulation of PPARc 2 transcriptional activation was investigated along with sLZIP's involvement in differentiation of MSCs into adipocytes and osteoblasts. sLZIP interacts with PPARc 2 and functions as a corepressor of PPARc 2 . sLZIP enhances formation of the PPARc 2 corepressor complex through specific interaction with HDAC3, resulting in suppression of PPARc 2 transcriptional activity. We found that sLZIP prevents expression of PPARc 2 target genes and adipocyte differentiation both in vitro and in vivo. sLZIP also upregulates Runx2 transcriptional activity via inhibition of PPARc 2 activity, and promotes osteoblast differentiation. sLZIP transgenic mice exhibited enhanced bone mass and density, compared with wild-type mice. These results indicate that sLZIP has a critical role in the regulation of osteogenesis and bone development. However, sLZIP does not affect chondrogenesis and osteoclastogenesis. We propose that sLZIP is a novel PPARc 2 modulator for control of the balance between adipogenesis and osteogenesis during MSC differentiation, and that sLZIP can be used as a therapeutic target molecule for treatment of obesity, osteodystrophy, and osteoporosis. Mesenchymal stem cells (MSCs) are bone marrow-derived multipotential stromal cells that can differentiate into several distinct cell types, including fat, bone, cartilage, and muscle. 1 Adipogenesis and osteogenesis have a reciprocal relationship in common mesenchymal precursor cells. 2 Disruption of the balance in these processes during MSC differentiation leads to disorders, such as obesity, skeletal fragility, and osteoporosis. 1 MSC differentiation is regulated by specific transcription factors. MSCs differentiate into adipocytes when they express peroxisome proliferator-activated receptor g 2 (PPARg 2 ), which enhances expression of adipogenic genes. 2 Runt-related transcription factor 2 (Runx2) enhances expression of osteogenic genes during osteoblast differentiation; however, PPARg 2 suppresses osteogenesis via inhibition of Runx2 transcriptional activity. 3 Therefore, characterization of the ...