Bone morphogenetic proteins (BMPs) promote osteoblast differentiation and bone formation in vitro and in vivo. BMPs canonically signal through Smad transcription factors, but BMPs may activate signaling pathways traditionally stimulated by growth factor tyrosine kinase receptors. Of these, the mTOR pathway has received considerable attention because BMPs activate P70S6K, a downstream effector of mTOR, suggesting that BMP-induced osteogenesis is mediated by mTOR activation. However, contradictory effects of the mTOR inhibitor rapamycin (RAPA) on bone formation have been reported. Since bone formation is thought to be inversely related to lipid accumulation and mTOR is also important for lipid synthesis, we postulated that BMP-7 may stimulate lipogenic enzyme expression in a RAPA-sensitive mechanism. To test this hypothesis, we determined the effects of RAPA on BMP-7-stimulated expression of osteogenic and lipogenic markers in cultured fetal rat calvarial cells. Our study showed that BMP-7 promoted the expression of osteogenic and lipogenic markers. The effect of BMP-7 on osteogenic markers was greater in magnitude than on lipogenic markers and was temporally more sustained. RAPA inhibited basal and BMP-7-stimulated osteogenic and lipogenic marker expression and bone nodule mineralization. The acetyl CoA carboxylase inhibitor TOFA stimulated the expression of osteoblast differentiation markers, whereas palmitate suppressed their expression. We speculate that the BMP-7-stimulated adipogenesis is part of the normal anabolic response to BMPs, but that inappropriate activation of the lipid biosynthetic pathway by mTOR could have deleterious effects on bone formation and could explain paradoxical effects of RAPA to promote bone formation. J. Cell. Biochem. 114: 1760–1771, 2013. © 2013 Wiley Periodicals, Inc.