The incidence of osteosarcoma is increased 500-fold in patients who inherit mutations in the RB gene. To understand why the retinoblastoma protein (pRb) is specifically targeted in osteosarcoma, we studied its function in osteogenesis. Loss of pRb but not p107 or p130 blocks late osteoblast differentiation. pRb physically interacts with the osteoblast transcription factor, CBFA1, and associates with osteoblast-specific promoters in vivo in a CBFA1-dependent fashion. Association of pRb with CBFA1 and promoter sequences results in synergistic transactivation of an osteoblast-specific reporter. This transactivation function is lost in tumor-derived pRb mutants, underscoring a potential role in tumor suppression. Thus, pRb functions as a direct transcriptional coactivator promoting osteoblast differentiation, which may contribute to the targeting of pRb in osteosarcoma.