Intensive use of cancer chemotherapy is increasingly linked with long-term skeletal side effects such as osteopenia, osteoporosis and fractures. However, cellular mechanisms by which chemotherapy affects bone integrity remain unclear. Methotrexate (MTX), used commonly as an anti-metabolite, is known to cause bone defects. To study the pathophysiology of MTX-induced bone loss, we examined effects on bone and marrow fat volume, population size and differentiation potential of bone marrow stromal cells (BMSC) in adult rats following chemotherapy for a short-term (five once-daily doses at 0.75mg/kg) or a 6-week term (5 doses at 0.65mg/kg+9 days rest+1.3mg/kg twice weekly for 4 weeks). Histological analyses revealed that both acute and chronic MTX treatments caused a significant decrease in metaphyseal trabecular bone volume and an increase in marrow adipose mass. In the acute model, proliferation of BMSCs significantly decreased on days 3-9, and consistently the stromal progenitor cell population as assessed by CFU-F formation was significantly reduced on day 9. Ex vivo differentiation assays showed that while the osteogenic potential of isolated BMSCs was significantly reduced, their adipogenic capacity was markedly increased on day 9. Consistently, RT-PCR gene expression analyses showed osteogenic transcription factors Runx2 and Osterix (Osx) to be decreased but adipogenic genes PPARγ and FABP4 up-regulated on days 6 and 9 in the stromal population. These findings indicate that MTX chemotherapy reduces the bone marrow stromal progenitor cell population and induces a switch in differentiation potential towards adipogenesis at the expense of osteogenesis, resulting in osteopenia and marrow adiposity.