Enhancing bone morphogenetic protein (BMP) signaling increases bone formation in a variety of settings that target bone repair. However, the role of BMP in the maintenance of adult bone mass is not well understood. Targeted disruption of BMP3 in mice results in increased trabecular bone formation, whereas transgenic overexpression of BMP3 in skeletal cells leads to spontaneous fracture, consistent with BMP3 having a negative role in bone mass regulation. Here we investigate the importance of BMP3 as a mediator of BMP signaling in the adult skeleton. We find that osteoblasts (OBL) and osteocytes are the source of BMP3 in adult bone. Using in vitro cultures of primary bone marrow stromal cells, we show that overexpression of BMP3 suppresses OBL differentiation, whereas loss of BMP3 increases colony-forming unit fibroblasts and colony-forming unit OBL. The ability of BMP3 to affect OBL differentiation is due to its interaction with activin receptor type 2b (Acvr2b) because knockdown of endogenous Acvr2b in bone marrow stromal cells reduces the suppressive effect of BMP3 on OBL differentiation. These findings best fit a model in which BMP3, produced by mature bone cells, acts to reduce BMP signaling through Acvr2b in skeletal progenitor cells, limiting their differentiation to mature OBL. Our data further support the idea that endogenous BMPs have a physiological role in regulating adult bone mass.