Bone formation in vivo is a complex phenomenon whereby recruitment and replication of mesenchymal precursors of osteoblasts, differentiation into preosteoblasts, osteoblasts, and mature osteoblasts ultimately result in the accumulation and mineralization of the extracellular matrix. MC3T3-E1, a clonal osteoblastic cell line, was derived from mouse calvaria and undergoes an ordered and time dependent developmental sequence leading to formation of multilayered bone nodules over a 30 - 35 day period. This developmental pattern is characterized by the replication of preosteoblasts followed by growth arrest and expression of mature osteoblastic characteristics such as matrix maturation and eventual formation of multilayered nodules with a mineralized extracellular matrix. We have found that Ets1 is expressed in proliferating preosteoblastic cells whereas Ets2 is expressed by differentiating and mature osteoblasts. In addition, the expression of Ets1 can be induced in MC3T3-E1 and fetal rat calvaria cells by retinoic acid (RA) which is known to exert profound effects on skeletal growth and development, bone turnover, and induce specific cellular responses in bone cells. Thus the multiple functions of RA in bone cells are likely to be mediated in part by Ets1. Also, Ets2 transgenic mice develop multiple neurocranial, viserocranial, and cervical skeletal abnormalities. Significantly, these abnormalities are similar to the skeletal anomalies found in trisomy-16 mice and in humans with Down's syndrome, wherein the dosage of Ets2 is known to be increased. These results indicate that Ets2 has an important role in skeletal development and that Ets2 overexpression in transgenics is responsible for the genesis of the same type of skeletal abnormalities that are seen in Down's syndrome. Thus the genetic programs regulated by Ets1 and Ets2 may significantly affect the development and differentiation of osteoblasts, and in fact, Ets1 has been shown to interact with the 'quintessential' osteoblast transcription factor CbfA1. This review will examine in detail the role and possible targets of Ets1 and Ets2 in osteoblast differentiation and bone formation.