The number of mature osteoblasts and marrow adipocytes in bone is influenced by the differentiation of the common mesenchymal progenitor cell towards one phenotype and away from the other. Consequently, factors which promote adipogenesis not only lead to fatty marrow but also inhibit osteoblastogenesis, resulting in decreased osteoblast numbers, diminished bone formation and, potentially, inadequate bone mass and osteoporosis. In addition to osteoblast and bone adipocyte numbers being influenced by this skewing of progenitor cell differentiation towards one phenotype, mature osteoblasts and adipocytes secrete factors which may evoke changes in the cell fate and function of each other. This review examines the endogenous factors, such as PPAR-γ2, Wnt, IGF-1, GH, FGF-2, oestrogen, the GP130 signalling cytokines, vitamin D and glucocorticoids, which regulate the selection between osteoblastogenesis and adipogenesis and the interrelationship between fat and bone. The role of adipokines on bone, such as adiponectin and leptin, as well as adipose-derived oestrogen, is reviewed and the role of bone as an energy regulating endocrine organ is discussed.