Adenosine rapidly stimulated adenylate cyclase activity but did not modify cyclic AMP degradation when added to a particulate fraction prepared from isolated bone cells. The effect of adenosine was one-half maximal at 5-10 μM, and was not mimicked by 5' AMP, inosine, guanosine, uridine, adenine, or ribose. Basal and adenosinestimulated adenylate cyclase activities were directly proportional to the concentration of particulate protein in the assay system. Theophylline decreased the degree to which adenosine stimulated adenylate cyclase activity, whereas another phosphodiesterase inhibitor, RO-20-1724, failed to influence the effect of adenosine. Adenosine itself, and not a metabolite of adenosine, is the stimulator of adenylate cyclase, since it was neither phosphorylated nor deaminated appreciably by the particulate fraction. The particulate fraction did not convert substrate ATP to adenosine in amounts sufficient to enhance adenylate cyclase. The stimulatory effect of adenosine was maximal at 1.2 mM Mg2+, declined with increases in the Mg2+ concentration, and was replaced by inhibition at 20 mM Mg2+. At 2.4 mM Mg2+, basal adenylate cyclase activity peaked at 1.1 mM ATP, and was inhibited by higher ATP concentrations. The magnitude of adenosine stimulation was greater at inhibitory concentrations of ATP than at concentrations which yielded maximum activity. The results suggest that the previously demonstrated ability of adenosine to increase cyclic 3'5' AMP levels in intact bone cells stems from its effect on adenylate cyclase. Adenosine may act by modifying the regulatory influence of free Mg2+, uncomplexed ATP, (or both), on adenylate cyclase. Theophylline appears to interfere with the action of adenosine by a mechanism which is distinct from its capacity to inhibit cyclic AMP phosphodiesterase activity.