Metastasis suppressor 1 (MTSS1) plays an inhibitory role in tumorigenesis and metastasis of a variety of cancers. To date, the function of MTSS1 in the differentiation of marrow stromal progenitor cells is completely unknown. In the current study, we explored whether and how MTSS1 has a role in osteoblast differentiation and bone homeostasis. Our data showed that MTSS1 mRNA was upregulated during osteoblast differentiation and downregulated in the osteoblastic lineage cells of ovariectomized and aged mice. Functional studies revealed that MTSS1 promoted the osteogenic differentiation from marrow stromal progenitor cells. Mechanistic explorations uncovered that the inactivation of Src and afterwards activation of canonical Wnt signaling were involved in osteoblast differentiation induced by MTSS1. The enhanced osteogenic differentiation induced by MTSS1 overexpression was attenuated when Src was simultaneously overexpressed, and conversely, the inhibition of osteogenic differentiation by MTSS1 siRNA was rescued when the Src inhibitor was supplemented to the culture. Finally, the in vivo transfection of MTSS1 siRNA to the marrow of mice significantly reduced the trabecular bone mass, along with the reduction of trabecular osteoblasts, the accumulation of marrow adipocytes, and the increase of phospho-Src positive cells on the trabeculae. No change in the number of osteoclasts was observed. This study has for the first time unraveled that MTSS1 contributes to osteoblast differentiation and bone homeostasis through regulating Src-Wnt/β-catenin signaling. It also suggests the potential of MTSS1 as a new target for the treatment of osteoporosis.