Cell-extracellular matrix (ECM) interactions play major roles in controlling progenitor cell fate and differentiation. The receptor tyrosine kinase, discoidin domain receptor 2 (DDR2), is an important mediator of interactions between cells and fibrillar collagens. DDR2 signals through both ERK1/2 and p38 MAP kinase, which stimulate osteoblast differentiation and bone formation. Here we show that DDR2 is critical for skeletal development and differentiation of marrow progenitor cells to osteoblasts while suppressing marrow adipogenesis. Smallie mice (Ddr2slie/slie ), which contain a nonfunctional Ddr2 allele, have multiple skeletal defects. A progressive decrease in tibial trabecular bone volume/total volume (BV/TV) was observed when wild-type (WT), Ddr2wt/slie , and Ddr2slie/slie mice were compared. These changes were associated with reduced trabecular number (Tb.N) and trabecular thickness (Tb.Th) and increased trabecular spacing (Tb.Sp) in both males and females, but reduced cortical thickness only in Ddr2slie/slie females. Bone changes were attributed to decreased bone formation rather than increased osteoclast activity. Significantly, marrow fat and adipocyte-specific mRNA expression were significantly elevated in Ddr2slie/slie animals. Additional skeletal defects include widened calvarial sutures and reduced vertebral trabecular bone. To examine the role of DDR2 signaling in cell differentiation, bone marrow stromal cells (BMSCs) were grown under osteogenic and adipogenic conditions. Ddr2slie/slie cells exhibited defective osteoblast differentiation and accelerated adipogenesis. Changes in differentiation were related to activity of runt-related transcription factor 2 (RUNX2) and PPARγ, transcription factors that are both controlled by MAPK-dependent phosphorylation. Specifically, the defective osteoblast differentiation in calvarial cells from Ddr2slie/slie mice was associated with reduced ERK/MAP kinase and RUNX2-S319 phosphorylation and could be rescued with a constitutively active phosphomimetic RUNX2 mutant. Also, DDR2 was shown to increase RUNX2-S319 phosphorylation and transcriptional activity while also increasing PPARγ-S112 phosphorylation, but reducing its activity. DDR2 is, therefore, important for maintenance of osteoblast activity and suppression of marrow adipogenesis in vivo and these actions are related to changes in MAPK-dependent RUNX2 and PPARγ phosphorylation. © 2016 American Society for Bone and Mineral Research.