ABSTRACT   Insulin-like growth factor binding protein 2 (IGFBP-2) is important for acquisition of normal bone mass in mice; however, the mechanism by which IGFBP-2 functions is not defined. These studies investigated the role of IGFBP-2 in stimulating osteoblast differentiation. MC-3T3 preosteoblasts expressed IGFBP-2, and IGFBP-2 knockdown resulted in a substantial delay in osteoblast differentiation, reduced osteocalcin expression and Alizarin red staining. These findings were replicated in primary calvarial osteoblasts obtained from IGFBP-2−/− mice, and addition of IGFBP-2 rescued the differentiation program. In contrast, overexpression of IGFBP-2 accelerated the time course of differentiation as well as increasing the total number of differentiating cells. By day 6, IGFBP-2–overexpressing cells expressed twice as much osteocalcin as control cultures and this difference persisted. To determine the mechanism by which IGFBP-2 functions, the interaction between IGFBP-2 and receptor tyrosine phosphatase β (RPTPβ) was examined. Disruption of this interaction inhibited the ability of IGFBP-2 to stimulate AKT activation and osteoblast differentiation. Knockdown of RPTPβ enhanced osteoblast differentiation, whereas overexpression of RPTPβ was inhibitory. Adding back IGFBP-2 to RPTPβ-overexpressing cells was able to rescue cell differentiation via enhancement of AKT activation. To determine the region of IGFBP-2 that mediated this effect, an IGFBP-2 mutant that contained substitutions of key amino acids in the heparin-binding domain-1 (HBD-1) was prepared. This mutant had a major reduction in its ability to stimulate differentiation of calvarial osteoblasts from IGFBP-2−/− mice. Addition of a synthetic peptide that contained the HBD-1 sequence to calvarial osteoblasts from IGFBP-2−/− mice rescued differentiation and osteocalcin expression. In summary, the results clearly demonstrate that IGFBP-2 stimulates osteoblast differentiation and that this effect is mediated through its heparin-binding domain-1 interacting with RPTPβ. The results suggest that stimulation of differentiation is an important mechanism by which IGFBP-2 regulates the acquisition of normal bone mass in mice. © 2014 American Society for Bone and Mineral Research.