Abstract Coleusin factor is a diterpenoid compound isolated from the root of a tropical plant, Coleus forskohlii. Although Coleusin factor has been reported to suppress proliferation of and induce apoptosis in several types of cancer cells, the effects of Coleusin factor on osteosarcoma and the underlying mechanism are still not fully understood. In this study, we show that Coleusin factor treatment potently inhibits the growth of osteosarcoma cells associated with G1 cell-cycle arrest. Interestingly, apoptosis and cell death are not induced. Instead, Coleusin factor causes osteosarcoma cells to exhibit typical properties of differentiated osteoblasts, including a morphologic alteration resembling osteoblasts, the expression of osteoblast differentiation markers, elevated alkaline phosphatase activity, and increased cellular mineralization. Coleusin factor treatment significantly increases the expression of bone morphogenetic protein-2 (BMP-2), a crucial osteogenic regulator, and runt-related transcription factor 2 (RUNX2), one of the key transcription factors of the BMP pathway. When BMP-2 signaling is blocked, Coleusin factor fails to inhibit cell proliferation and to induce osteoblast differentiation. Thus, upregulation of BMP-2 autocrine is critical for Coleusin factor to induce osteoblast differentiation and exert its anticancer effects on osteosarcoma. Importantly, administration of Coleusin factor inhibits the growth of osteosarcoma xenografted in nude mice without systemic or immunologic toxicity. Osteosarcoma is a highly aggressive cancer marked by the loss of normal differentiation. Coleusin factor represents a new type of BMP-2 inducer that restores differentiation in osteosarcoma cells. It may provide a promising therapeutic strategy against osteosarcoma with minimal side effects. Mol Cancer Ther; 13(6); 1431–41. ©2014 AACR.