Inflammaging induces osteoporosis by promoting bone destruction and inhibiting bone formation. TRAF3 limits bone destruction by inhibiting RANKL-induced NF-κB signaling in osteoclast precursors. However, the role of TRAF3 in mesenchymal progenitor cells (MPCs) is unknown. Mice with TRAF3 deleted in MPCs develop early onset osteoporosis due to reduced bone formation and enhanced bone destruction. In young mice TRAF3 prevents β-catenin degradation in MPCs and maintains osteoblast formation. However, TRAF3 protein levels decrease in murine and human bone samples during aging when TGFβ1 is released from resorbing bone. TGFβ1 induces degradation of TRAF3 in murine MPCs and inhibits osteoblast formation through GSK-3β-mediated degradation of β-catenin. Thus, TRAF3 positively regulates MPC differentiation into osteoblasts. TRAF3 deletion in MPCs activated NF-κB RelA and RelB to promote RANKL expression and enhance bone destruction. We conclude that pharmacologic stabilization of TRAF3 during aging could treat/prevent age-related osteoporosis by inhibiting bone destruction and promoting bone formation.