Itch, a HECT family E3 ligase, affects numerous cell functions by regulating ubiquitination and proteasomal degradation of target proteins. However, the role of Itch in osteoblasts has not been investigated. We report that Itch^−/− mice have significantly increased bone volume, osteoblast numbers, and bone formation rate. Using bone marrow stromal cells from Itch^−/− mice and wild-type (WT) littermates as bone marrow mesenchymal precursor cells (BM-MPCs), we found that BM-MPCs from Itch^−/− mice have compatible numbers of cells expressing mesenchymal stem cell markers. However, Itch^−/− BM-MPCs grew faster in an in vitro culture, formed more CFU-F mesenchymal colonies, and exhibited increased osteoblast differentiation and decreased adipogenesis. Importantly, Itch^−/− mesenchymal colony cells formed significantly more new bone in a tibial defect of recipient mice compared with WT cells. The expression levels of JunB, an AP-1 transcription factor that positively regulate osteoblast differentiation, were significantly increased in Itch^−/− BM-MPCs when proteasome function is intact. In contrast, the amount of ubiquitinated JunB protein was markedly decreased in Itch^−/− cells when proteasome function was blocked. Overexpression of WT Itch, but not an Itch ligase-inactive mutant, rescued differentiation defects of Itch^−/− BM-MPCs. Itch^−/− BM-MPCs had a similar role in immune modulation as WT cells. Thus, Itch negatively controls osteoblast differentiation from BM-MPCs through the regulation of proteasomal degradation of positive osteoblast regulator JunB protein. Itch is a potential new target for bone anabolic drug development to treat patients with bone loss.