The stimulatory effects of testosterone (T) on bone can either be through a direct activation of the androgen receptor (AR) or mediated through aromatization of T to estradiol (E2), followed by activation of estrogen receptors (ERs) in bone. Aromatase expression in osteoblasts and reproductive tissues is dependent on different promoters, which are differentially regulated. To study the effect of elevated local aromatization of T to E2 in bone, we developed a transgenic mouse model (Coll-1alpha1-Arom) that overexpresses the human aromatase gene under the control of the osteoblast specific rat type I alpha I procollagen promoter. The Coll-1alpha1-Arom mice expressed human aromatase mRNA specifically in bone and had unaffected serum E2 and T levels. Male Coll-1alpha1-Arom mice had clearly increased total body BMD, trabecular BMD, cortical BMD, and cortical thickness associated with elevated osteoprotegerin mRNA levels and reduced number of osteoclasts (p < 0.01). Treatment of ovariectomized mice with T increased cortical and trabecular thickness in the Coll-1alpha1-Arom mice (p < 0.001) but not in the wildtype mice. In conclusion, elevated aromatase expression specifically in osteoblasts results in stimulatory estrogenic effects in bone without increasing serum E2 levels. Because osteoblast-specific aromatase expression results in an increased ER to AR activation ratio in bone, we propose that activation of ERs results in a more pronounced increase in bone mass than what is seen after activation of the AR. Development of osteoblast-specific inducers of aromatase expression might identify substances with stimulatory effects on bone without systemic adverse effects.