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We studied the effect of steroids on the differentiation of a pluripotential mesenchymal cell with use of a cell line (D1) from mouse bone-marrow stroma. The cells were treated with increasing (10 sup -9, 10 sup -8, and 10 sup -7 -molar) concentrations of dexamethasone for increasing durations ranging from forty-eight hours to twenty-one days. The appearance of triglyceride vesicles in the cells indicated that this treatment had induced the differentiation of the cell into adipocytes. The number of cells that contained the triglyceride vesicles and the expression of a fat-cell-specific gene, 422(aP2), increased with longer durations of exposure to dexamethasone and with higher concentrations of the steroid. Treatment with dexamethasone also diminished the expression of alpha1 type-I collagen mRNA and osteocalcin mRNA. The data indicate that dexamethasone stimulates the differentiation of cells in bone-marrow stroma into adipocytes as well as the accumulation of fat in the marrow at the expense of expression of type-I collagen and osteocalcin mRNA, thereby suppressing differentiation into osteoblasts.Steroid-induced adipogenesis by bone progenitor cells in marrow may influence the development of osteonecrosis. It is therefore important to consider the investigation of a treatment, such as the inhibition of the metabolism and accumulation of fat in marrow, that can prevent the onset of osteonecrosis.