Specific binding of leukemia‐inhibitory factor (LIF) to osteoblasts, but not multinucleated osteoclasts, was demonstrated by receptor autoradiography by *using cells isolated from newborn rat long bones. The clonal rat osteogenic sarcoma cells, UMR 106‐06, which have several phenotypic properties of osteoblasts, expressed 300 LIF receptors per cell, with an apparent K_D of 60 pM. Treatment of calvarial osteoblasts or UMR 106‐01 cells with LIF resulted in a dose‐dependent inhibition of plasminogen activator (PA) activity. Both calvarial osteoblasts and osteogenic sarcoma cells were shown by Western blotting and reverse fibrin autography to produce plasminogen activator inhibitor‐1 (PAI‐1), the production of which was increased by LIF treatment. Northern blot analysis revealed that LIF treatment resulted in a rapid (peak 1 hour), dose‐dependent increase in mRNA for PAI‐1. LIF treatment of the preosteoblast cell line, UMR 201, enhanced the alkaline phosphatase response of these cells to retinoic acid. Each of the osteoblast‐like cell types (calvarial osteoblasts, UMR 106‐06, and UMR 201) was shown to produce LIF by bioassay and, by using the polymerase chain reaction (PCR), was shown to express low levels of mRNA for LIF. These data establish that cells of the osteoblast lineage are targets for LIF action. The reported anabolic effects of this cytokine on bone formation in vivo could be related to inhibition of protease activity. LIF may be an important paracrine modulator in bone, or perhaps an autocrine one, based on the evidence for its production by osteoblasts and osteoblast‐like cells.