Thiazolidinedione (TZD) therapy has been associated with an increased risk of bone fractures. Studies in rodents have led to a model in which decreased bone quality in response to TZDs is due to a competition of lineage commitment between osteoblasts (OBs) and adipocytes (ADs) for a common precursor cell, resulting in decreased OB numbers. Our goal was to investigate the effects of TZD exposure on OB-AD lineage determination from primary human bone marrow stromal cells (hBMSCs) both in vitro and in vivo from nondiabetic subjects and patients with type 2 diabetics. Our experimental design included 2 phases. Phase 1 was an in vitro study of TZD effects on the differentiation of hBMSCs into OBs and ADs in nondiabetic subjects. Phase 2 was a randomized, placebo-controlled trial to determine the effects of 6-month pioglitazone treatment in vivo on hBMSC differentiation using AD/OB colony forming unit assays in patients with type 2 diabetes. In vitro, TZDs (pioglitazone and rosiglitazone) enhanced the adipogenesis of hBMSCs, whereas neither altered OB differentiation or function as measured by alkaline phosphatase activity, gene expression, and mineralization. The ability of TZDs to enhance adipogenesis occurred at a specific time/stage of the differentiation process, and pretreating with TZDs did not further enhance adipogenesis. In vivo, 6-month TZD treatment decreased OB precursors, increased AD precursors, and increased total colony number in patients with type 2 diabetes. Our results indicate that TZD exposure in vitro potently stimulates adipogenesis but does not directly alter OB differentiation/mineralization or lineage commitment from hBMSCs. However, TZD treatment in type 2 diabetic patients results in decreased osteoblastogenesis from hBMSCs compared with placebo, indicating an indirect negative effect on OBs and suggesting an alternative model by which TZDs might negatively regulate bone quality.