Background: Bone marrow (BM) adipose tissue (BMAT) has been shown to be vital for regulating metabolism and maintaining skeletal homeostasis in the marrow niche. As a reflection of BM remodeling, BMAT is highly responsive to nutrient fluctuations, hormonal changes and metabolic disturbances such as obesity and diabetes mellitus. Expansion of BMAT has also been strongly associated with bone loss in mice and humans. However, the regulation of BM plasticity remains poorly understood, as does the mechanism that links changes in marrow adiposity with bone remodeling. Methods: Using C57BL/6 mice as a model, we employed the bone-protected PPARg constitutive deacetylation (2KR), Adipsin, and its downstream effector, C3, knockout mice. These mice were challenged to thiazolidinedione treatment, calorie restriction, or aging in order to induce bone loss and MAT expansion. Analysis of bone density and marrow adiposity was performed using a μCT scanner and by RNA analysis to assess adipocyte and osteoblast markers. For in vitro studies, primary bone marrow stromal cells (BMSCs) were isolated and subjected to osteoblastogenic or adipogenic differentiation or chemical treatment followed by morphological and molecular analyses. Clinical data was obtained from samples of a previous clinical trial of fasting and high calorie diet in healthy human volunteers. Results: We have shown that Adipsin is the most up-regulated adipokine during BMAT expansion in mice and humans, in a PPARg acetylation-dependent manner. Ablation of Adipsin in mice specifically inhibited BMAT expansion but not peripheral adipose depots, and improved bone mass during calorie restriction, thiazolidinedione treatment, and aging. These effects were mediated through its downstream effector, complement component C3, to prime common progenitor cells toward adipogenesis rather than osteoblastogenesis through inhibiting Wnt/b-catenin signaling. Conclusions: Adipsin promotes new adipocyte formation and affects skeletal remodeling in the BM niche. Our study reveals a novel mechanism whereby the BM sustains its own plasticity through paracrine and endocrine actions of a unique adipokine. Funding: This work was supported by the National Institutes of Health T32DK007328 (NA), F31DK124926 (NA), R01DK121140 (JCL), R01AR068970 (BZ), R01AR071463 (BZ), R01DK112943 (LQ), and P01HL087123 (LQ).