Whether the negative impact of excess glucocorticoids on the skeleton is due to direct effects on bone cells, indirect effects on extraskeletal tissues, or both is unknown. To determine the contribution of direct effects of glucocorticoids on osteoblastic/osteocytic cells in vivo, we blocked glucocorticoid action on these cells via transgenic expression of 11beta-hydroxysteroid dehydrogenase type 2, an enzyme that inactivates glucocorticoids. Osteoblast/osteocyte-specific expression was achieved by insertion of the 11beta-hydroxysteroid dehydrogenase type 2 cDNA downstream from the osteoblast-specific osteocalcin promoter. The transgene did not affect normal bone development or turnover as demonstrated by identical bone density, strength, and histomorphometry in adult transgenic and wild-type animals. Administration of excess glucocorticoids induced equivalent bone loss in wild-type and transgenic mice. As expected, cancellous osteoclasts were unaffected by the transgene. However, the increase in osteoblast apoptosis that occurred in wild-type mice was prevented in transgenic mice. Consistent with this, osteoblasts, osteoid area, and bone formation rate were significantly higher in glucocorticoid-treated transgenic mice compared with glucocorticoid-treated wild-type mice. Glucocorticoid-induced osteocyte apoptosis was also prevented in transgenic mice. Strikingly, the loss of vertebral compression strength observed in glucocorticoid-treated wild-type mice was prevented in the transgenic mice, despite equivalent bone loss. These results demonstrate for the first time that excess glucocorticoids directly affect bone forming cells in vivo. Furthermore, our results suggest that glucocorticoid-induced loss of bone strength results in part from increased death of osteocytes, independent of bone loss.