Osteoblasts undergo apoptosis or differentiate into either osteocytes or bone-lining cells after termination of bone matrix synthesis. In this study, we investigated the role of matrix metalloproteinases (MMPs) in differentiation of osteoblasts, bone formation, transdifferentiation into osteocytes, and osteocyte apoptosis. This was accomplished by using calvarial sections from the MT1-MMP-deficient mouse and by culture of the mouse osteoblast cell line MC3T3-E1 and primary mouse calvarial osteoblasts. We found that a synthetic matrix metalloprotease inhibitor, GM6001, strongly inhibited bone formation in vitro of both primary osteoblasts and MC3T3 cells by approximately 75%. To further investigate at which level of osteoblast differentiation MMP inhibition was attenuating osteoblast function, we found that neither preosteoblast nor mature osteoblast activity was affected. In contrast, cell survival of osteoblasts forced to transdifferentiate into osteocytes in 3D type I collagen gels were inhibited by more than 50% when exposed to 10 microM GM6001 and to Tissue Inhibitor of Metalloproteinase-2 (TIMP-2), a natural MT1-MMP inhibitor. This shows the importance of MMPs in safeguarding osteoblasts from apoptosis when transdifferentiating into osteocytes. By examination of osteoblasts and osteocytes embedded in calvarial bone in the MT1-MMP deficient mice, we found that MT1-MMP deficient mice had 10-fold higher levels of apoptotic osteocytes than wild-type controls. We have previously shown that MT1-MMP activates latent Transforming Growth Factorbeta (TGF-beta). These findings strongly suggest that MT1-MMP-activated TGF-beta maintains osteoblast survival during transdifferentiation into osteocytes, and maintains mature osteocyte viability. Thus, the interrelationship of MMPs and TGF-beta may play an important role in bone formation and maintenance.