Induced pluripotent stem cells (iPSCs) have generated hope and excitement because of the potential they possess for generating patient-specific embryonic-like stem cells (ESCs). Although many hurdles remain to be solved before the cells can be applied clinically; studies directed toward understanding factors that control differentiation of the cells toward various cell lineages are prerequisites for their future application. In the present study, we generated murine iPSC and assessed their differentiation toward osteogenic lineage. Murine tail tip fibroblasts were reprogrammed into embryonic-like state by transduction with defined factors (Oct3/4, Sox2, c-Myc, and klf4) carried in a retroviral vector. The reprogrammed cells expressed ESC markers, gave rise to three germ layers as demonstrated by teratoma formation and immunofluorescence staining. These data confirmed that the reprogrammed cells exhibited ESC-like state. Treatment of iPSCs-derived embryoid bodies (EBs) with transforming growth factor beta 1 (TGF-β1) in the presence of retinoic acid enhanced generation of MSC-like cells. The MSCs-like cells expressed putative makers associated with MSCs; the cells deposited calcium in vitro when cultured in osteogenic medium. Interestingly MSCs-like cells generated from iPSC directed EBs by treatment with retinoic acid and TGF-β1 deposited more calcium in vitro than cells derived without TGF-β1 treatment. Taken together, the data demonstrate that iPSC give rise to MSCs-like state and that the cells have potential to differentiate toward osteoblasts. In addition, brief treatment of iPSC-derived EBs with TGF-β1 may be an approach for directing iPSC toward MSC-like state. J. Cell. Biochem. 109: 643–652, 2010. © 2009 Wiley-Liss, Inc.