The molecular mechanisms that transduce the osteoblast response to physical forces in the bone microenvironment are poorly understood. Here, we used genetic and pharmacological experiments to determine whether the polycystins PC1 and PC2 (encoded by Pkd1 and Pkd2) and the transcriptional coactivator TAZ form a mechanosensing complex in osteoblasts. Compound-heterozygous mice lacking 1 copy of Pkd1 and Taz exhibited additive decrements in bone mass, impaired osteoblast-mediated bone formation, and enhanced bone marrow fat accumulation. Bone marrow stromal cells and osteoblasts derived from these mice showed impaired osteoblastogenesis and enhanced adipogenesis. Increased extracellular matrix stiffness and application of mechanical stretch to multipotent mesenchymal cells stimulated the nuclear translocation of the PC1 C-terminal tail/TAZ (PC1-CTT/TAZ) complex, leading to increased runt-related transcription factor 2–mediated (Runx2-mediated) osteogenic and decreased PPARγ-dependent adipogenic gene expression. Using structure-based virtual screening, we identified a compound predicted to bind to PC2 in the PC1:PC2 C-terminal tail region with helix:helix interaction. This molecule stimulated polycystin- and TAZ-dependent osteoblastogenesis and inhibited adipogenesis. Thus, we show that polycystins and TAZ integrate at the molecular level to reciprocally regulate osteoblast and adipocyte differentiation, indicating that the polycystins/TAZ complex may be a potential therapeutic target to increase bone mass.