Telomerase activity can prevent telomere shortening and replicative senescence in human somatic cells. We and others have previously demonstrated that forced expression of telomerase in human bone marrow stromal stem cells (BMSSCs) was able to extend their life-span and enhance their bone-forming capability, without inducing malignant transformation. In this study, we determined that telomerase was able to accelerate calcium accumulation of human BMSSCs under osteogenic inductive conditions. Similarly, xenogeneic transplantation of telomerase-expressing BMSSCs (BMSSC-Ts) yielded ectopic bone formation at 2 weeks post-transplantation, 2-4 weeks earlier than typically seen with BMSSCs transfected with empty vector (BMSSC-Cs). Low-density DNA array analysis revealed that telomerase activity increases the expression of G1 regulating genes including cyclin D3, cyclin E1, E2F-4, and DP2, associated with hyperphosphorylation of retinoblastoma (pRb), leading to the extended proliferative capacity of BMSSC-Ts. Importantly, BMSSC-T transplants showed a higher number of human osteogenic cells at 8 weeks post transplantation compared with the BMSSC-C transplants, coupled with a significantly increased osteogenic capacity. One possible mechanism leading to accelerated osteogenesis by BMSSC-Ts may be attributed, at least in part, to the upregulation of the important osteogenic genes such as CBFA1, osterix, and osteocalcin in vitro. Taken together, these findings show that telomerase can accelerate cell cycle progression from G1-to-S phase and enhance osteogenic differentiation of BMSSCs, because of the upregulation of CBFA1, osterix, and osteocalcin.