The majority of conditions associated with bone loss, including aging, are accompanied by increased marrow adiposity possibly due to shifting of the balance between osteoblast and adipocyte differentiation in bone marrow stromal (skeletal) stem cells (MSC). In order to study the relationship between osteoblastogenesis and adipogenesis in bone marrow, we have characterized cellular models of multipotent MSC as well as pre-osteoblastic and pre-adipocytic cell populations. Using these models, we identified two secreted factors in the bone marrow microenviroment: secreted frizzled-related protein 1 (sFRP-1) and delta-like1 (preadipocyte factor 1) (Dlk1/Pref-1). Both exert regulatory effects on osteoblastogenesis and adipogenesis. Our studies suggest a model for lineage fate determination of MSC that is regulated through secreted factors in the bone marrow microenvironment that mediate a cross-talk between lineage committed cell populations in addition to controlling differentiation choices of multipotent MSC. This article is part of a Special Issue entitled Bone and Fat.