Forkhead box O1 (FOXO1) is upregulated during bone formation and in response to stimulation by bone morphogenetic proteins. Studies presented here examined the functional role of FOXO1 in a well defined culture system in which pre-osteoblastic cells undergo terminal differentiation in vitro. Mineralizing cultures of MC3T3-E1 cells were examined with or without FOXO1 knockdown by RNAi. Normal cells show the upregulation of FOXO1 and RUNX2 DNA binding activity, alkaline phosphatase activity, and mRNA levels of FOXO1, RUNX2, type 1 collagen, osteocalcin and MMP13 during formation of mineralizing nodules. In FOXO1 depleted cells each of these measurements was significantly reduced compared to values in control cells transfected with scrambled siRNA (P < 0.05). Depletion of FOXO1 also reduced the number of mineralized nodules formed. Moreover, chromatin immunoprecipitation assays revealed a direct interaction of FOXO1 with the RUNX2 promoter. Overexpression of FOXO1 reduced the MC3T3-E1 cell number and the number of PCNA positive cells with little effect on apoptosis. These findings indicate that FOXO1 plays an important role in promoting osteoblast differentiation and suppressing proliferation in differentiating cells.