Bone remodeling depends on the precise coordination of bone resorption and subsequent bone formation. Disturbances of this process are associated with skeletal diseases, such as Camurati-Engelmann disease (CED). We show using in vitro and in vivo models that active TGF-beta1 released during bone resorption coordinates bone formation by inducing migration of bone marrow stromal cells, also known as bone mesenchymal stem cells, to the bone resorptive sites and that this process is mediated through a SMAD signaling pathway. Analyzing mice carrying a CED-derived mutant TGFB1 (encoding TGF-beta1), which show the typical progressive diaphyseal dysplasia seen in the human disease, we found high levels of active TGF-beta1 in the bone marrow. Treatment with a TGF-beta type I receptor inhibitor partially rescued the uncoupled bone remodeling and prevented the fractures. Thus, as TGF-beta1 functions to couple bone resorption and formation, modulation of TGF-beta1 activity could be an effective treatment for bone remodeling diseases.