Telomere shortening owing to telomerase deficiency leads to accelerated senescence of human skeletal (mesenchymal) stem cells (MSCs) in vitro, whereas overexpression leads to telomere elongation, extended life span, and enhanced bone formation. To study the role of telomere shortening in vivo, we studied the phenotype of telomerase-deficient mice (Terc−/−). Terc−/− mice exhibited accelerated age-related bone loss starting at 3 months of age and during 12 months of follow-up revealed by dual-energy X-ray absorptiometric (DXA) scanning and by micro–computed tomography (µCT). Bone histomorphometry revealed decreased mineralized surface and bone-formation rate as well as increased osteoclast number and size in Terc−/− mice. Also, serum total deoxypyridinoline (tDPD) was increased in Terc−/− mice. MSCs and osteoprogenitors isolated from Terc−/− mice exhibited intrinsic defects with reduced proliferating cell number and impaired osteogenic differentiation capacity. In addition, the Terc−/−-MSC cultures accumulated a larger proportion of senescent β-galactosidase+ cells and cells exhibiting DNA damage. Microarray analysis of Terc−/− bone revealed significant overexpression of a large number of proinflammatory genes involved in osteoclast (OC) differentiation. Consistently, serum obtained from Terc−/− mice enhanced OC formation of wild-type bone marrow cultures. Our data demonstrate two mechanisms for age-related bone loss caused by telomerase deficiency: intrinsic osteoblastic defects and creation of a proinflammatory osteoclast-activating microenvironment. Thus telomerization of MSCs may provide a novel approach for abolishing age-related bone loss. © 2011 American Society for Bone and Mineral Research.