Decreased bone mass, osteoporosis, and increased fracture rates are common skeletal complications in patients with insulin-dependent diabetes mellitus (IDDM; type I diabetes). IDDM develops from little or no insulin production and is marked by elevated blood glucose levels and weight loss. In this study we use a streptozotocin-induced diabetic mouse model to examine the effect of type I diabetes on bone. Histology and microcomputed tomography demonstrate that adult diabetic mice, exhibiting increased plasma glucose and osmolality, have decreased trabecular bone mineral content compared with controls. Bone resorption could not completely account for this effect, because resorption markers (tartrate-resistant acid phosphatase 5b, urinary deoxypyridinoline excretion, and tartrate-resistant acid phosphatase 5 mRNA) are unchanged or reduced at 2 and/or 4 wk after diabetes induction. However, osteocalcin mRNA (a marker of late-stage osteoblast differentiation) and dynamic parameters of bone formation were decreased in diabetic tibias, whereas osteoblast number and runx2 and alkaline phosphatase mRNA levels did not differ. These findings suggest that the final stages of osteoblast maturation and function are suppressed. We also propose a second mechanism contributing to diabetic bone loss: increased marrow adiposity. This is supported by increased expression of adipocyte markers [peroxisome proliferator-activated receptor γ2, resistin, and adipocyte fatty acid binding protein (αP2)] and the appearance of lipid-dense adipocytes in diabetic tibias. In contrast to bone marrow, adipose stores at other sites are depleted in diabetic mice, as indicated by decreased body, liver, and peripheral adipose tissue weights. These findings suggest that IDDM contributes to bone loss through changes in marrow composition resulting in decreased mature osteoblasts and increased adipose accumulation.