Mesenchymal stem cells have the potential to differentiate into different cell lineages, including adipocytes and osteoblasts. The induction of adipocyte differentiation by glucocorticoids (GCs) not only causes the accumulation of fat cells in bone marrow, but also depletes the supply of osteoblasts for new bone formation, thus leading to osteoporosis. We have shown that a GC-induced leucine-zipper protein (GILZ) antagonizes adipocyte differentiation. GILZ binds to a tandem repeat of CCAAT/enhancer-binding protein (C/EBP) binding sites in the promoter of the gene encoding peroxisome-proliferator-activated receptor-gamma2 (PPAR-gamma2), and inhibits its transcription as a sequence-specific transcriptional repressor. We have also shown that ectopic expression of GILZ blocks GC-induced adipocyte differentiation. Furthermore, adipogenic marker genes (for example, those encoding PPAR-gamma2, C/EBP-alpha, lipoprotein lipase and adipsin) are also inhibited by GILZ. Our results reveal a novel GC antagonistic mechanism that has potential therapeutic applications for the inhibition of GC-induced 'adipocyte differentiation.