To better understand the in vivo bone-inductive properties of recombinant human (rh) BMP-2, we examined the ability of the protein to alter the phenotype of a bone marrow stromal cell line. W-20-17. rhBMP-2 increased alkaline phosphatase activity in W-20-17 cells in a dose-responsive manner in the absence of an effect on proliferation. The induction of alkaline phosphatase activity was not apparent until 12 h after rhBMP-2 treatment had begun and was effectively eliminated by cotreatment with cycloheximide, suggesting a requirement for protein synthesis. Continued treatment of W-20-17 cells with rhBMP-2 for 8 days resulted in a significant increase, compared to control cultures, in the production of cellular cAMP in response to a PTH challenge. In addition, 4-day treatment with rhBMP-2 induced osteocalcin levels in W-20-17 cells. These results indicate that rhBMP-2 induces the expression of several markers associated with the osteoblast phenotype in W-20-17 cells and raises the possibility that BMP-2 may be involved in the differentiation of osteoblasts from progenitor cells resident in bone marrow.