11 beta-hydroxysteroid dehydrogenase (11 beta-HSD) acts as a pre-receptor signaling mechanism for corticosteroids by regulating the access of active glucocorticoids to both glucocorticoid (GR) and mineralocorticoid receptors (MR). To examine the relationship between endogenous glucocorticoid metabolism and osteoblast function, we have characterized the expression of 11 beta-HSD isozymes in rat osteosarcoma cells. Analysis of mRNA from ROS 25/1, UMR 106 and ROS 17/2.8 cells revealed transcripts for both 11 beta-HSD type 1 (11 beta-HSD1) and type 2 (11 beta-HSD2) in all three cell lines. However, enzyme activity studies showed only high affinity dehydrogenase activity (inactivation of corticosterone (B) to 11-dehydrocorticosterone (A)), characteristic of 11 beta-HSD2; conversion of B to A was higher in ROS 25/1> UMR 106 cells>ROS 17/2.8. Although all three cell lines had similar numbers of GR (50,000/cell), glucocorticoid modulation of alkaline phosphatase activity and cell proliferation was only detectable in ROS 17/2.8 cells. Further studies showed that 11 beta-HSD2 activity in each of the cells was potently stimulated by both A and B, but not by synthetic dexamethasone. This effect was blocked by the 11 beta-HSD inhibitor, 18 beta-glycyrrhetinic acid (but not by GR or MR antagonists) suggesting direct, allosteric regulation of 11 beta-HSD2 activity. These data indicate that in osteosarcoma cells 11 beta-HSD2 plays a key role in controlling GR-mediated responses; cells with relatively high levels of 11 beta-HSD2 activity were insensitive to glucocorticoids, whilst cells with low levels showed functional responses to both dexamethasone and B. In addition to the established effects of 11 beta-HSD2 in protecting MR in the kidney and colon, our data suggest that 11 beta-HSD2 in bone represents an important pre-receptor mechanism in determining ligand availability to GR.