Transforming growth factor-beta (TGF-beta) is abundant in bone matrix and has been shown to regulate the activity of osteoblasts and osteoclasts in vitro. To explore the role of endogenous TGF-(beta) in osteoblast function in vivo, we have inhibited osteoblastic responsiveness to TGF-beta in transgenic mice by expressing a cytoplasmically truncated type II TGF-beta receptor from the osteocalcin promoter. These transgenic mice develop an age-dependent increase in trabecular bone mass, which progresses up to the age of 6 months, due to an imbalance between bone formation and resorption during bone remodeling. Since the rate of osteoblastic bone formation was not altered, their increased trabecular bone mass is likely due to decreased bone resorption by osteoclasts. Accordingly, direct evidence of reduced osteoclast activity was found in transgenic mouse skulls, which had less cavitation and fewer mature osteoclasts relative to skulls of wild-type mice. These bone remodeling defects resulted in altered biomechanical properties. The femurs of transgenic mice were tougher, and their vertebral bodies were stiffer and stronger than those of wild-type mice. Lastly, osteocyte density was decreased in transgenic mice, suggesting that TGF-beta signaling in osteoblasts is required for normal osteoblast differentiation in vivo. Our results demonstrate that endogenous TGF-beta acts directly on osteoblasts to regulate bone remodeling, structure and biomechanical properties.