Abstract TAZ (transcriptional co-activator with PDZ binding motif) is a transcriptional modulator of mesenchymal stem cell differentiation. We have found that TAZ was expressed in postconfluent 3T3-L1 preadipocytes and downregulated during differentiation. Downregulation of TAZ was specifically mediated by dexamethasone (DEX), one component of induction cocktails routinely used in adipocyte differentiation. DEX repressed the transcription of TAZ by direct binding of the glucocorticoid receptor (GR) to the GR binding element in its promoter. More importantly, overexpression of TAZ inhibited adipogenesis and promoted the trans-differentiation of preadipocytes into osteocytes. This establishes a new functional interaction between DEX and TAZ that contributes to the mechanism of adipogenesis.