The 1,25 dihydroxyvitamin D₃ (1,25(OH)₂D₃)-induced differentiation of osteoblasts comprises the sequential induction of cell cycle arrest at G₀/G₁ and the expression of bone matrix proteins. Reports differ on the effects of insulin-like growth factor binding protein-5 (IGFBP-5) on bone cell growth and osteoblastic function. IGFBP-5 can be growth-stimulatory or -inhibitory and can enhance or impair osteoblast function. In previous studies we have shown that IGFBP-5 localizes to the nucleus and interacts with the retinoid receptors. We now show that IGFBP-5 interacts with nuclear vitamin D receptor (VDR) and blocks retinoid X receptor (RXR):VDR heterodimerization. VDR and IGFBP-5 were shown to co-localize to the nuclei of MG-63 and U2-OS cells and co-immunoprecipitate in nuclear extracts from these cells. Induction of osteocalcin promoter activity and alkaline phosphatase (ALP) activity by 1,25(OH)₂D₃ were significantly enhanced when IGFBP-5 was down-regulated in U2-OS cells. Moreover, we found IGFBP-5 increased basal ALP activity and collagen 1 type 1 expression, and that 1,25(OH)₂D₃ was unable to further induce the expression of these bone differentiation markers in MG-63 cells. Expression of IGFBP-5 inhibited MG-63 cell growth and caused cell cycle arrest at G₀/G₁ and G₂/M. Furthermore, IGFBP-5 reduced the effects of 1,25(OH)₂D₃ in blocking cell cycle progression at G₀/G₁ and decreased the expression of cyclin D1. These results demonstrate that IGFBP-5 can interact with VDR to prevent RXR:VDR heterodimerization and suggest that IGFBP-5 may attenuate the 1,25(OH)₂D₃-induced expression of bone differentiation markers while having a modest effect on the 1,25(OH)₂D₃-mediated inhibition of cell cycle progression in bone cells.