Although increased bone marrow fat in age-related bone loss has been associated with lower trabecular mass, the underlying mechanism responsible remains unknown. We hypothesized that marrow adipocytes exert a lipotoxic effect on osteoblast function and survival through the reversible biosynthesis of fatty acids (FA) into the bone marrow microenvironment. We have used a two-chamber system to co-culture normal human osteoblasts (NHOst) with differentiating pre-adipocytes in the absence or presence of an inhibitor of FA synthase (cerulenin) and separated by an insert that allowed unidirectional trafficking of soluble factors only and prevented direct cell-cell contact. Supernatants were assayed for the presence of FA using mass spectophotometry. After 3 weeks in co-culture, NHOst showed significantly lower levels of differentiation and function based on lower mineralization and expression of alkaline phosphatase, osterix, osteocalcin and Runx2. In addition, NHOst survival was affected by the presence of adipocytes as determined by MTS-formazan and TUNEL assays as well as higher activation of caspases 3/7. These toxic effects were inhibited by addition of cerulenin. Furthermore, culture of NHOst with either adipocyte-conditioned media alone in the absence of adipocytes themselves or with the addition of the most predominant FA (stearate or palmitate) produced similar toxic results. Finally, Runx2 nuclear binding was affected by addition of either adipocyte conditioned media or FA into the osteogenic media. We conclude that the presence of FA within the marrow milieu can contribute to the age-related changes in bone mass and can be prevented by the inhibition of FA synthase.