Autophagy is a conserved lysosomal degradation process that has important roles in both normal human physiology and disease. However, the function of autophagy in bone homeostasis is not well understood. Here, we report that autophagy is activated during osteoblast differentiation. Ablation of focal adhesion kinase family interacting protein of 200 kD (FIP200), an essential component of mammalian autophagy, led to multiple autophagic defects in osteoblasts including aberrantly increased p62 expression, deficient LC3-II conversion, defective autophagy flux, absence of GFP-LC3 puncta in FIP200-null osteoblasts expressing transgenic GFP-LC3, and absence of autophagosome-like structures by electron microscope examination. Osteoblast-specific deletion of FIP200 led to osteopenia in mice. Histomorphometric analysis revealed that the osteopenia was the result of cell-autonomous effects of FIP200 deletion on osteoblasts. FIP200 deletion led to defective osteoblast terminal differentiation in both primary bone marrow and calvarial osteoblasts in vitro. Interestingly, both proliferation and differentiation were not adversely affected by FIP200 deletion in early cultures. However, FIP200 deletion led to defective osteoblast nodule formation after initial proliferation and differentiation. Furthermore, treatment with autophagy inhibitors recapitulated the effects of FIP200 deletion on osteoblast differentiation. Taken together, these data identify FIP200 as an important regulator of bone development and reveal a novel role of autophagy in osteoblast function through its positive role in supporting osteoblast nodule formation and differentiation. © 2013 American Society for Bone and Mineral Research.