Imbalanced functions between osteoclasts and osteoblasts are involved in inflammatory bone damage. The clinical effectiveness of blocking TNF-alpha in treatment of active rheumatoid arthritis established the significance of TNF-alpha in the pathogenesis. In the present study, we investigated the cellular mechanism by which estrogen and glucocorticoid interact in osteoblastic differentiation regulated by BMP and TNF-alpha using mouse myoblastic C2C12 cells. The expression of estrogen receptors, (ER)alpha and ERbeta, and glucocorticoid receptor (GCR) was significantly increased by BMP-2 treatment regardless of the presence of estradiol and dexamethasone. Estradiol, but not dexamethasone, enhanced BMP-induced Runx2 and osteocalcin expression in C2C12 cells. In addition, TNF-alpha suppressed BMP-2-induced Runx2 and osteocalcin expression, and estradiol and dexamethasone reversed the TNF-alpha effects on BMP-2-induced Runx2 expression. Dexamethasone also abolished osteocalcin expression induced by BMP-2. Interestingly, BMP-2-induced Smad1/5/8 phosphorylation and Id-1 promoter activity were enhanced by estradiol pretreatment. On the other hand, dexamethasone suppressed BMP-2-induced Smad1/5/8 activation. TNF-alpha-induced SAPK/JNK activity was suppressed by estradiol, while NFkappaB phosphorylation was inhibited by dexamethasone. Of note, the inhibitory effects of TNF- on BMP-2-induced Runx2 and osteocalcin expression were reversed by SAPK/JNK inhibition regardless of the presence of estradiol. The estradiol effects that enhance BMP-2-induced Runx2 and osteocalcin mRNA expression were restored by antagonizing ER, and moreover, membrane-impermeable estradiol-BSA failed to enhance the BMP-2-induced osteoblastic differentiation. Thus, estrogen and glucocorticoid are functionally involved in the process of osteoblast differentiation regulated by BMPs and TNF-alpha. BMP-2 increases the sensitivities of ERs and GCR, whereas estrogen and glucocorticoid differentially regulate BMP-Smad and TNF-alpha signaling.