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Recent studies from mammalian, fish, and in vitro models have identified bone and cartilage development as sensitive targets for dioxins and other aryl hydrocarbon receptor ligands. In this study, we assess how embryonic 2,3,7,8-tetrachlorochlorodibenzo-p-dioxin (TCDD) exposure impacts axial osteogenesis in Japanese medaka (Oryzias latipes), a vertebrate model of human bone development. Embryos from inbred wild-type Orange-red Hd-dR and 3 transgenic medaka lines (twist:EGFP, osx/sp7:mCherry, col10a1:nlGFP) were exposed to 0.15 nM and 0.3 nM TCDD and reared until 20 dpf. Individuals were stained for mineralized bone and imaged using confocal microscopy to assess skeletal alterations in medial vertebrae in combination with a qualitative spatial analysis of osteoblast and osteoblast progenitor cell populations. Exposure to TCDD resulted in an overall attenuation of vertebral ossification characterized by truncated centra, and reduced neural and hemal arch lengths. Effects on mineralization were consistent with modifications in cell number and cell localization of transgene-labeled osteoblast and osteoblast progenitor cells. Endogenous expression of osteogenic regulators runt-related transcription factor 2 (runx2) and osterix (osx/sp7), and extracellular matrix genes osteopontin (spp1), collagen type I alpha I (col1), collagen type X alpha I (col10a1), and osteocalcin (bglap/osc) was significantly diminished at 20 dpf following TCDD exposure as compared with controls. Through global transcriptomic analysis more than 590 differentially expressed genes were identified and mapped to select pathological states including inflammatory disease, connective tissue disorders, and skeletal and muscular disorders. Taken together, results from this study suggest that TCDD exposure inhibits axial bone formation through dysregulation of osteoblast differentiation. This approach highlights the advantages and sensitivity of using small fish models to investigate how xenobiotic exposure may impact skeletal development.