Transcription factor activating protein 2 (AP2) plays an important role in cellular differentiation. Although profound craniofacial and long bone developmental abnormalities have been observed in AP2-knockout mice, the molecular effects of AP2 on osteoblasts are poorly defined. We demonstrated that AP2 regulates the expression of human Frizzled 1 (FZD1), a co-receptor for the Wnt signalling pathway, in human osteoblast cell lines and primary bone marrow stromal cells (BMSCs). We also identified a putative AP2-binding site in the FZD1 proximal promoter in silico and characterized this binding element further in Saos2 invitro by ChIP, electrophoretic mobility shift and promoter reporter assays. The transcriptional repression of the FZD1 promoter by AP2 was confirmed in normal human fetal osteoblasts (hFOB). Furthermore, overexpression of AP2 resulted in a significant reduction in both differentiation and mineralization of Saos2 cells. Knockdown of FZD1 expression before AP2 up-regulation diminished the AP2-dependent inhibition of Saos2 cell differentiation and mineralization. Similarly, overexpressing FZD1 before AP2 treatment in both Saos2 and BMSCs diminished the inhibitory effect of AP2 on osteoblast differentiation and mineralization. Taken together, these results demonstrate that AP2 is a negative regulator of osteoblast differentiation and mineralization, and its inhibitory effect may be mediated in part through down-regulation of FZD1 expression.