We undertook genetic and nongenetic approaches to investigate the relationship between telomere maintenance and osteoblast differentiation, as well as to uncover a possible link between a known mediator of cellular aging and senile bone loss. Using mouse models of disrupted telomere maintenance molecules, including mutants in the Werner helicase (Wrn−/−), telomerase (Terc−/−), and Wrn−/− Terc−/− double mutants predisposed to accelerated bone loss, we measured telomere dysfunction-induced foci (TIFs) and markers of osteoblast differentiation in mesenchymal progenitor cells (MPCs). We found that telomere maintenance is directly and significantly related to osteoblast differentiation, with dysfunctional telomeres associated with impaired differentiation independent of proliferation state. Telomere-mediated defects in osteoblast differentiation are associated with increased p53/p21 expression and concomitant reduction in RUNX2. Conversely, MPCs from p53−/− mice do not have substantial telomere dysfunction and spontaneously differentiate into osteoblasts. These results suggest that critical telomere dysfunction may be a prominent mechanism for age-related osteoporosis and limits MPC differentiation into bone-forming cells via the p53/p21 pathway.