Although there are a number of cell lines committed to differentiate into brown adipocytes, the stem-cell origin of brown fat remains unclear. To address this problem, we explored the effects of various pharmacological agents on differentiation of C3H10T1/2 cells, a pluripotent stem-cell line of mesodermal origin. Histochemical and biochemical analysis revealed that, when these cells were treated with retinoic acid, they expressed the osteoblastic marker alkaline phosphatase. Upon addition of thiazolidinediones and insulin, these cells accumulated lipid and expressed the adipocyte marker aP2, indicating differentiation into adipocytes. Treatment during the growth phase with thiazolidinediones resulted in maximal lipogenesis indicating a need for clonal expansion for efficient adipogenic differentiation. Further analysis revealed that addition of thiazolidinediones to the cells increased (1) the lipolytic response of the cells to beta3-agonists, (2) the expression of uncoupling protein (UCP), (3) the expression of mRNA for type II iodothyronine 5'-deiodinase (5'D-II), and (4) mitochondrial staining. These results suggest the anti-diabetic effects of thiazolidinediones may, in part, involve increased brown adipocyte differentiation. Moreover, this is the first direct evidence indicating that brown adipocytes and osteoblasts may arise from the same stem cell.