Alkaline phosphatase (ALP) is a widely accepted bone marker. Its expression is stimulated by bone morphogenetic protein (BMP)-2 treatment, the activation of BMP receptors and R-Smads, and the expression of Dlx5 and Runx2. However, how BMP-2 induces ALP expression is not clearly understood. We dissected the murine ALP promoter and found within it a Dlx5-binding cis-acting element by electrophoretic mobility shift assays and site-directed mutagenesis of the element. Dlx5 and the product of its target gene, Runx2, stimulated ALP promoter activity in an additive manner. However, because Dlx5 continued to stimulate ALP expression in Runx2(-/-) cells, the ALP stimulatory activity of Dlx5 is independent of Runx2. We also found that overexpression of Msx2 suppressed the mRNA level and enzyme activity of ALP that were induced by BMP-2 stimulation, and suppressed the Dlx5-stimulated ALP promoter activity by competing with Dlx5 for the cis-acting element in the ALP promoter. Moreover, Msx2 levels are constitutively high in C2C12 myogenic cells but decrease over time after BMP-2 treatment. This may explain why BMP-2 treatment of these cells results in immediate Dlx5 expression yet ALP expression commences only 1-2 days later. In other words, Msx2 in high levels counteracts initially the transcriptional activity of Dlx5 in low levels until a threshold Dlx5:Msx2 ratio is reached to the levels that allow the ALP stimulatory activity of Dlx5 to prevail. Thus, Dlx5 transactivates ALP expression, directly by binding to its cognate response element and/or indirectly by stimulating Runx2 expression, and Msx2 counteracts the direct transactivation of Dlx5.