Tumor necrosis factor α (TNF-α) promotes bone loss and inhibits bone formation. Osterix (Osx, SP7) is a transcription factor required for osteoblast (OB) differentiation because deletion results in a cartilaginous skeleton. We previously described a TNF suppressor element in the Osx promoter that was used to isolate nuclear proteins mediating TNF inhibition of OB differentiation. Nuclear extracts from TNF-treated pre-OBs were incubated with the TNF suppressor element for protein pull-down, and tryptic fragments were analyzed by mass spectrometry. Chromatin immunoprecipitation (ChIP) assay confirmed eight bound transcription factors. One protein, the paired related homeobox protein (Prx1), had been shown previously to have a critical role in limb bud formation and skeletal patterning. PCR revealed Prx1 expression in primary stromal cells (MSCs), C3H10T1/2 cells, and MC3T3 preosteoblasts. TNF stimulated a 14-fold increase in mRNA for Prx1, rapid cell accumulation in MC3T3 cells, and expression in periosteal and trabecular lining cells in vivo. Transient expression of Prx inhibited transcription of Osx and RUNX2. Expression of the Prx1b isoform or Prx2 decreased Osx and RUNX2 mRNA and OB differentiation in preosteoblasts. Silencing of Prx1 with siRNA abrogated TNF suppression of Osx mRNA and increased basal Osx expression. Electrophoretic mobility shift revealed Prx1b as the preferred isoform binding the Osx promoter. These results identify the homeobox protein Prx1 as an obligate mediator of TNF inhibition of Osx and differentiation of OB progenitors. Activation of Prx1 by TNF may contribute to reduced bone formation in inflammatory arthritis, menopause, and aging.