We characterized calvaria-derived cells of Cbfa1-deficient mice to determine their stages of differentiation. In long-term culture, Cbfa1-deficient calvarial cells did not acquire osteoblastic phenotypes, but numerous adipocyte foci appeared with an increase in the expression of marker genes for adipocyte differentiation. In culture with BMP-2, Cbfa1-deficient calvarial cells still failed to generate bone nodules but differentiated into chondrocytes and further to terminal hypertrophic chondrocytes, and adipocyte foci were decreased. Cbfa1-deficient calvarial cells transplanted into the peritoneal cavity of athymic mice using BMP-2-coated diffusion chambers generated cartilage but not bone. These data indicate that Cbfa1-deficient calvarial cells completely lack the ability to differentiate into mature osteoblasts and Cbfa1 has an inhibitory function in adipocyte differentiation. As Cbfa1-deficient calvarial cells were enriched with immature mesenchymal cells, which can differentiate into adipocytes and chondrocytes, it is suggested that Cbfa1 plays an essential role in determining the lineage of multipotential mesenchymal precursor cells.