Mice heterozygous for targeted disruption of Pthrp exhibit, by 3 months of age, diminished bone volume and skeletal microarchitectural changes indicative of advanced osteoporosis. Impaired bone formation arising from decreased BM precursor cell recruitment and increased apoptotic death of osteoblastic cells was identified as the underlying mechanism for low bone mass. The osteoporotic phenotype was recapitulated in mice with osteoblast-specific targeted disruption of Pthrp, generated using Cre-LoxP technology, and defective bone formation was reaffirmed as the underlying etiology. Daily administration of the 1–34 amino-terminal fragment of parathyroid hormone (PTH 1–34) to Pthrp^+/– mice resulted in profound improvement in all parameters of skeletal microarchitecture, surpassing the improvement observed in treated WT littermates. These findings establish a pivotal role for osteoblast-derived PTH-related protein (PTHrP) as a potent endogenous bone anabolic factor that potentiates bone formation by altering osteoblast recruitment and survival and whose level of expression in the bone microenvironment influences the therapeutic efficacy of exogenous PTH 1–34.