The cellular mechanism by which TNF-α inhibits osteoblastic differentiation induced by BMPs was investigated using mouse myoblast C2C12 cells expressing functional BMP receptors and Smad signaling molecules except ALK-6. Osteoblast transformation in response to BMP-2 was morphologically suppressed by TNF-α. Expression of biological markers for osteoblasts including Runx2 and osteocalcin, alkaline phosphatase activity, and parathyroid hormone (PTH) responsiveness shown by PTH-induced cAMP production were readily activated by BMP-2, -4, -6, and -7. The BMP-induced osteoblastic phenotype was dose-dependently inhibited by TNF-α. BMP-induced Smad1,5,8 phosphorylation of C2C12 cells was suppressed by TNF-α signaling. In addition, cDNA array analysis showed an increased expression of inhibitory Smad6 by TNF-α. MAP kinase analysis showed that ERK1/ERK2 and SAPK/JNK phosphorylation were selectively activated by TNF-α regardless of the presence of BMP ligands. BMPs had no effect on expression levels of TNF type 1 and 2 receptors. Notably, inhibition of SAPK/JNK restored TNF-α effects on BMP-induced osteoblast differentiation demonstrated by Id-1-promoter activity as well as Runx2 and osteocalcin mRNA levels. Collectively, TNF-α elicits BMP-induced osteogenic inhibition by suppressing BMP-Smad signaling pathway, at least in part, through SAPK/JNK activation and Smad6 upregulation.