Aging and obesity induce ectopic adipocyte accumulation in bone marrow cavities. This process is thought to impair osteogenic and hematopoietic regeneration. Here we specify the cellular identities of the adipogenic and osteogenic lineages of the bone. While aging impairs the osteogenic lineage, high-fat diet feeding activates expansion of the adipogenic lineage, an effect that is significantly enhanced in aged animals. We further describe a mesenchymal sub-population with stem cell-like characteristics that gives rise to both lineages and, at the same time, acts as a principal component of the hematopoietic niche by promoting competitive repopulation following lethal irradiation. Conversely, bone-resident cells committed to the adipocytic lineage inhibit hematopoiesis and bone healing, potentially by producing excessive amounts of Dipeptidyl peptidase-4, a protease that is a target of diabetes therapies. These studies delineate the molecular identity of the bone-resident adipocytic lineage, and they establish its involvement in age-dependent dysfunction of bone and hematopoietic regeneration.