The endocrine hormone fibroblast growth factor 21 (FGF21) is a powerful modulator of glucose and lipid metabolism and a promising drug for type 2 diabetes. Here we identify FGF21 as a potent regulator of skeletal homeostasis. Both genetic and pharmacologic FGF21 gain of function lead to a striking decrease in bone mass. In contrast, FGF21 loss of function leads to a reciprocal high-bone-mass phenotype. Mechanistically, FGF21 inhibits osteoblastogenesis and stimulates adipogenesis from bone marrow mesenchymal stem cells by potentiating the activity of peroxisome proliferator-activated receptor γ (PPAR-γ). Consequently, FGF21 deletion prevents the deleterious bone loss side effect of the PPAR-γ agonist rosiglitazone. Therefore, FGF21 is a critical rheostat for bone turnover and a key integrator of bone and energy metabolism. These results reveal that skeletal fragility may be an undesirable consequence of chronic FGF21 administration.