We used cDNA microarray to identify transforming growth factor beta (TGF-β) responsive target genes during osteoblast development and found that nephronectin (Npnt) is one such gene that is significantly down-regulated. Here we report the role of TGF-β in regulating Npnt-mediated osteoblast differentiation. We found that the effect of TGF-β on Npnt expression is associated with a change in cell morphology in a dose-dependent manner. Npnt-induced osteoblast differentiation was also inhibited by TGF-β, which changed cell morphology from cuboidal to fibroblastic, an indication that osteoblast differentiation was disrupted. Furthermore, TGF-β inhibited differentiation of osteoblasts transfected with various truncated Npnt constructs, suggesting that TGF-β can exert a down-stream effect on Npnt function. Our results suggest that TGF-β can inhibit osteoblast differentiation through various mechanisms.