Matrix GLA protein (MGP) is ubiquitously expressed with high accumulation in bone and cartilage, where it was found to associate with bone morphogenetic proteins (BMP) during protein purification. To test whether MGP affects BMP-induced differentiation, three sets of experiments were performed. First, pluripotent C3H10T1/2 cells transfected with human MPG (hMGP) or antisense to hMGP (AS-hMGP) were treated with BMP-2. In cells overexpressing hMGP, osteogenic and chondrogenic differentiation was inhibited indicating decreased BMP-2 activity. Conversely, in cells overexpressing AS-hMGP, BMP-2 activity was enhanced. Second, cells were prepared from homozygous and heterozygous MPG-deficient mice aortas. When treated with BMP-2, these cells underwent chondrogenic and osteogenic differentiation, respectively, whereas controls did not. Third, FLAG-tagged hMGP with the same biological effect as native hMGP inhibited BMP-induced differentiation, when exogenously added to culture media. Together, these results suggest that MGP modulates BMP activity. To test whether hMGP fragments would retain the effect of full-length hMGP, three subdomains were overexpressed in C3H10T1/2 cells, In cells expressing the mid-region, alone (amino acids (aa) 35-54) or in combination with the N terminus (aa 1-54) but not the C terminus (aa 35-84), osteogenic differentiation was enhanced and occurred even without added BMP-2. Thus, two subdomains had the opposite effect of full-length hMGP, possibly due to different expression levels or domain characteristics.