Genetic studies in the mouse have demonstrated multiple roles for β‐catenin in the skeleton. In the embryo, β‐catenin is critical for the early stages of osteoblast differentiation. Postnatally, β‐catenin in mature osteoblasts and osteocytes indirectly suppresses osteoclast differentiation. However, a direct role for β‐catenin in regulating osteoblast number and/or function specifically in the postnatal life has not been demonstrated. Addressing this knowledge gap is important because low‐density lipoprotein receptor‐related protein 5 (LRP5), a coreceptor for WNT signaling proposed to function through β‐catenin, controls osteoblast number and function in postnatal mice or humans. To overcome the neonatal lethality caused by embryonic deletion of β‐catenin in early‐stage osteoblast‐lineage cells, we use the Osx‐CreER^T2 mouse strain to remove β‐catenin in Osterix (Osx)‐expressing cells by administering tamoxifen (TM) temporarily to postnatal mice. Lineage‐tracing experiments in the long bones demonstrate that Osx‐CreER^T2 targets predominantly osteoblast‐lineage cells on the bone surface, but also transient progenitors that contribute to bone marrow stromal cells and adipocytes. Deletion of β‐catenin by this strategy greatly reduces the bone formation activity of the targeted osteoblasts. However, the targeted osteoblasts rapidly turn over and are replaced by an excessive number of non‐targeted osteoblasts, causing an unexpected increase in bone formation, but an even greater increase in osteoclast number and activity produces a net effect of severe osteopenia. With time, the mutant mice also exhibit a marked increase in bone marrow adiposity. Thus, β‐catenin in postnatal Osx‐lineage cells critically regulates bone homeostasis by promoting osteoblast activity and suppressing osteoblast turnover, while restraining osteoclast and marrow fat formation. © 2013 American Society for Bone and Mineral Research.