Bone grafting is the current standard of care for treatment of fracture nonunions, while alternative strategies such as bone marrow-derived mesenchymal stem cells are also used. MSCs can be induced towards the osteogenic lineage by in vitro treatment with dexamethasone (dex). This study aimed to determine the optimal duration of dex treatment for osteogenic differentiation of MSCs in vitro and evaluate the effect of this dex pretreatment on bone formation in vivo. To determine the optimal dex treatment, MSCs were cultivated in osteogenic medium for 5 weeks with a varying dex withdrawal schedule, such that MSCs were exposed to dex for either 0, 1, 2, 3, 4, or 5 weeks. During this period, alkaline phosphatase, calcium, and DNA assays, as well as von Kossa staining and morphological observations were performed. One and 2 week dex-treated groups returned to control levels rapidly, whereas 3 and 4 week groups retained higher levels of differentiation markers, with the 4 week group being the highest. Based on these in vitro results, MSCs (with and without dex) and control fibroblasts were seeded into ceramic cubes, cultured for 4 weeks, and implanted into SCID mice, and harvested 6 weeks postimplantation for histologic evaluation. There was no bone formation in fibroblast-seeded controls, little bone formation in control (CS 1), and extensive bone formation (CS 3–4) in dex-treated MSCs. These results indicate that pretreatment of MSCs with dex results in greater bone formation than in untreated controls.© 2009 Orthopaedic Research Society. Published by Wiley Periodicals, Inc. J Orthop Res 27: 916–921, 2009