Bone morphogenetic protein 2 (BMP 2) and transforming growth factor beta (TGF beta) are actively involved in bone formation and remodeling. TGF beta, a powerful stimulant in the early stage of bone cell growth and matrix formation, inhibits differentiation and in vitro mineralized nodule formation in primary fetal rat calvarial osteoblast system. TGF beta also negatively regulates BMP 2 expression at the transcriptional level. BMP 2 gene expression is controlled by a battery of transcriptional factors, some known and some yet to be identified. Immortalized osteoblast cell lines generated from a transgenic mouse carrying BMP 2 promoter-driven SV40 large T antigen transgene are described as powerful tools for studying regulation of BMP 2 gene expression and bone cell differentiation at the molecular level.