In addition to reproductive tissue, sex hormones induce transcriptional events in many connective tissue cells, including osteoblasts. Some sex hormone receptor modulators with bone sparing effects selectively target estrogen or androgen receptors, whereas others appear more promiscuous, in part through enzymatic metabolism. Rat osteoblasts express significant oxidative 3alpha-hydroxysteroid dehydrogenase activity, which can convert precursor substrates to potent androgen receptor agonists. Here we show that they also express 3-ketosteroid reductase activity, exemplified by 7-methyl-17-ethynyl-19-norandrostan-5 (10)en-3-one (tibolone) conversion to potent estrogen receptor alpha agonists. Conversion was rapid and quantitative, with 3alpha-hydroxytibolone as the primary metabolite. Consistently, tibolone induced estrogen receptor alpha-dependent gene promoter activity through cis-acting estrogen response elements, increased the stimulatory effect of TGF-beta on Smad-dependent gene promoter activity, and enhanced prostaglandin E2-induced activity of transcription factor Runx2. Rat osteoblasts express the 3-ketosteroid reductase AKR1C9, an aldo-keto reductase gene family member. Exposure to prostaglandin E2 increased AKR1C9 gene promoter activity and mRNA expression. AKR1C9 promoter activity was also enhanced by overexpression of protein kinase A catalytic subunit or transcription factor C/EBPdelta, and the effect of PGE2 was reduced by dominant negative C/EBPdelta competition or C/EBPdelta antisense expression. Moreover, prostaglandin E2 increased the amount of functional endogenous nuclear C/EBPdelta that could bind specifically to a distinct domain approximately 1.8-kb upstream from the start site of AKR1C9 transcription. In summary, in addition to 3alpha-hydroxysteroid dehydrogenase, rat osteoblasts express significant and regulatable 3-ketosteroid reductase activity. Through these enzymes, they may selectively metabolize precursor compounds into potent steroid receptor agonists locally within bone.