Using cultured human osteoblast‐like cells, we studied the effects of tumor necrosis factor (TNF) and recombinant human γ‐interferon (γ‐IFN) on osteoblast growth and function, and demonstrated that TNF stimulated bone cell proliferation and prostaglandin production while inhibiting 1,25‐(OH)₂D₃—stimulated alkaline phosphatase activity and osteocalcin release. In contrast, γ‐IFN inhibited proliferation and stimulated alkaline phosphatase activity of the cells, while inhibiting 1,25‐(OH)₂D₃—stimulated osteocalcin production and having variable effects on the release of prostaglandins, depending on the presence of other factors. Our results suggest that TNF and γ‐IFN can act directly on bone‐forming cells to affect both their proliferation and their differentiated function, and that changes in the ability of cells to produce these factors in disease states may contribute to alterations in the integrity of connective tissue matrices.