Patients with chronic inflammatory disorders, such as rheumatoid arthritis, often have osteoporosis due to a combination of Tumor necrosis factor-induced increased bone resorption and reduced bone formation. To test if TNF inhibits bone formation by affecting the commitment and differentiation of mesenchymal stem cells (MSCs) into osteoblasts, we examined the osteogenic potential of MSCs from TNF transgenic (TNF-Tg) mice, a model of chronic inflammatory arthritis. MSC-enriched cells were isolated from bone marrow stromal cells using negative selection with anti-CD45 antibody coated magnetic beads. The expression profile of MSC surface markers the osteogenic, chondrogenic, and adipogenic properties of CD45⁻ cells were confirmed by FACS and cell differentiation assays. MSC-enriched CD45⁻ cells from TNF-Tg mice formed significantly decreased numbers of fibroblast and ALP⁺ colonies and had a decreased expression of osteoblast marker genes. As TNF may upregulate ubiquitin ligases, which negatively regulate osteoblast differentiation, we examined the expression levels of several ubiquitin ligases and found that Wwp1 expression was significantly increased in MSC-enriched CD45⁻ cells of TNF-Tg mice. Wwp1 knockdown rescued impaired osteoblast differentiation of TNF-Tg CD45⁻ cells. Wwp1 promotes ubiquitination and degradation of JunB, an AP-1 transcription factor that positively regulates osteoblast differentiation. Injection of TNF into wild-type mice resulted in decreased osteoblast differentiation of MSCs and increased JunB ubiquitination, which was completely blocked in Wwp1^−/− mice. Thus, Wwp1 targets JunB for ubiquitination and degradation in MSCs after chronic exposure to TNF, and inhibition of Wwp1 in MSCs could be a new mechanism to limit inflammation-mediated osteoporosis by promoting their differentiation into osteoblasts.