Skeletal and glycemic traits have shared etiology, but the underlying genetic factors remain largely unknown. To identify genetic loci that may have pleiotropic effects, we studied Genome-wide association studies (GWASs) for bone mineral density and glycemic traits and identified a bivariate risk locus at 3q21. Using sequence and epigenetic modeling, we prioritized an adenylate cyclase 5 (ADCY5) intronic causal variant, rs56371916. This SNP changes the binding affinity of SREBP1 and leads to differential ADCY5 gene expression, altering the chromatin landscape from poised to repressed. These alterations result in bone- and type 2 diabetes-relevant cell-autonomous changes in lipid metabolism in osteoblasts and adipocytes. We validated our findings by directly manipulating the regulator SREBP1, the target gene ADCY5, and the variant rs56371916, which together imply a novel link between fatty acid oxidation and osteoblast differentiation. Our work, by systematic functional dissection of pleiotropic GWAS loci, represents a framework to uncover biological mechanisms affecting pleiotropic traits.