The proto-oncogene Src is ubiquitously expressed and is involved in cellular differentiation. However, the role of Src in embryonic stem (ES) cell osteogenic differentiation is largely unknown. Using the small molecule inhibitor PP2, c-Src specific siRNAs, and tet-inducible lentiviral vectors overexpressing active c-Src, we delineated an inhibitory role of c-Src in osteogenic differentiation of mouse embryonic stem cells (mESCs) and mouse MC3T3-E1s preosteoblasts. Active c-Src was shown to restrict the nuclear residency of Runt-related transcription factor 2 (Runx2) and its transcriptional activity with no detectable effect on Runx2 expression level. Furthermore, we showed Signal Transducer and Activator of Transcription 1 (STAT1) was indispensable to the inhibitory role of c-Src on Runx2 nuclear localization. Specifically, higher levels of active c-Src increased STAT1 half-life by inhibiting its proteasomal degradation, thereby increasing the cytoplasmic abundance of STAT1. More abundant cytoplasmic STAT1 bound and anchored Runx2, which restricted its nucleocytoplasmic shuttling and ultimately reduced Runx2 transcriptional activity. Collectively, this study has defined a new mechanism by which c-Src inhibits the transcriptional regulation of osteogenesis from mESCs in vitro.