Myeloid Elf-1 like factor (MEF) is one of the Ets transcription factors known to regulate cell proliferation and differentiation. A previous report has shown that osteoblast-specific MEF transgenic mice (Col1a1-MEF TG mice) have low bone mass but high bone marrow adiposity. In the present study, we explored a previously unappreciated mechanism whereby MEF promotes adipogenesis in bone marrow. An adipogenic colony-forming unit assay showed that bone marrow cells derived from Col1a1-MEF TG mice had a higher adipogenic differentiation potential compared to those from wild-type. The levels of adipogenic marker genes expression in 3T3L1 cells were higher when co-cultured with Col1a1-MEF TG bone marrow cells than with wild-type cells. MC3T3-E1 preosteoblasts transfected with MEF secreted higher levels of 15-deoxy-delta (12, 14)-prostaglandin J(2), a potent endogenous ligand of peroxisome proliferator-activated receptor γ (PPARγ), under adipogenic conditions. MEF overexpression increased the adipogenic marker genes expression including PPARγ and lipid droplet accumulation in MC3T3-E1 preosteoblasts and 3T3L1 preadipocytes. Endogenous MEF expression levels increased as adipocyte differentiation proceeded. Knockdown of MEF by siRNA suppressed expression levels of adipogenic marker genes including PPARγ. MEF directly bound to the MEF binding element on the mouse PPARγ promoter, transactivating promoter activity. Immunohistochemical staining of tibia sections demonstrated that bone lining cells and bone marrow cells express higher levels of PPARγ protein in Col1a1-MEF TG mice than in wild-type mice. These results suggest that MEF transactivates PPARγ expression, which, in turn, enhances adipogenic differentiation. Furthermore, MEF overexpressing osteoblasts secrete higher levels of adipogenic factors, creating a marrow microenvironment that favors adipogenesis.