Extracellular nucleotides, signaling through P2 receptors, may act as local regulators of bone cell function. We investigated the effects of nucleotide agonists [ATP, ADP, uridine triphosphate (UTP), and uridine diphosphate] and pyrophosphate (PPi, a key physiological inhibitor of mineralization) on the deposition and mineralization of collagenous matrix by primary osteoblasts derived from rat calvariae. Our results show that extracellular ATP, UTP, and PPi strongly and selectively blocked the mineralization of matrix nodules; ADP and uridine diphosphate were without effect. Significant inhibition of mineralization occurred in the presence of relatively low concentrations of ATP, UTP, or PPi (1–10 μm), without affecting production of fibrillar or soluble collagen. In cultures treated with 10 μm ATP or UTP, the expression and activity of alkaline phosphatase, which promotes mineralization by hydrolyzing PPi, was inhibited. The potent inhibitory actions of ATP and UTP on bone mineralization are consistent pharmacologically with mediation by the P2Y₂ receptor, which is strongly expressed by mature osteoblasts. In support of this notion, we found 9–17% increases in bone mineral content of hindlimbs of P2Y₂-deficient mice. We also found that osteoblasts express ectonucleotide phosphodiesterase/pyrophosphatase-1, an ectonucleotidase that hydrolyzes nucleotide triphosphates to yield PPi, and that addition of 10 μm ATP or UTP to osteoblast cultures generated 2 μm PPi within 10 min. Thus, a component of the profound inhibitory action of ATP and UTP on bone mineralization could be mediated directly by PPi, independently of P2 receptors.