Two transgenic mouse lines were generated with a DNA construct bearing a 2.3-kilobase (kb) fragment of the rat α1 type I collagen promoter driving a truncated form of the herpes thymidine kinase gene (Col2.3Δtk). Expression of the transgene was found in osteoblasts coincident with other genetic markers of early osteoblast differentiation. Mice treated with ganciclovir (GCV) for 16 days displayed extensive destruction of the bone lining cells and decreased osteoclast number. In addition, a dramatic decrease in bone marrow elements was observed, which was more severe in the primary spongiosum and marrow adjacent to the diaphyseal endosteal bone. Immunostaining for transgene expression within the bone marrow was negative and marrow stromal cell cultures developed normally in the presence of GCV until the point of early osteoblast differentiation. Our findings suggest that the early differentiating osteoblasts are necessary for the maintenance of osteoclasts and hematopoiesis. Termination of GCV treatment produced an exaggerated response of new bone formation in cortical and trabecular bone. The Col2.3Δtk mouse should be a useful model to define the interrelation between bone and marrow elements as well as a model to analyze the molecular and cellular events associated with a defined wave of osteogenesis on termination of GCV treatment.