Accumulating evidence indicates that interaction of stromal cell-derived factor 1 (SDF-1/CXCL12 [CXC motif, ligand 12]) with its cognate receptor, CXCR4 (CXC motif, receptor 4), generates signals that regulate hematopoietic progenitor cell (HPC) trafficking in the bone marrow. During granulocyte colony-stimulating factor (G-CSF)-induced HPC mobilization, CXCL12 protein expression in the bone marrow decreases. Herein, we show that in a series of transgenic mice carrying targeted mutations of their G-CSF receptor and displaying markedly different G-CSF-induced HPC mobilization responses, the decrease in bone marrow CXCL12 protein expression closely correlates with the degree of HPC mobilization. G-CSF treatment induced a decrease in bone marrow CXCL12 mRNA that closely mirrored the fall in CXCL12 protein. Cell sorting experiments showed that osteoblasts and to a lesser degree endothelial cells are the major sources of CXCL12 production in the bone marrow. Interestingly, osteoblast activity, as measured by histomorphometry and osteocalcin expression, is strongly down-regulated during G-CSF treatment. However, the G-CSF receptor is not expressed on osteoblasts; accordingly, G-CSF had no direct effect on osteoblast function. Collectively, these data suggest a model in which G-CSF, through an indirect mechanism, potently inhibits osteoblast activity resulting in decreased CXCL12 expression in the bone marrow. The consequent attenuation of CXCR4 signaling ultimately leads to HPC mobilization.