Bone marrow–derived mesenchymal stem cells (MSCs) are a common precursor of both adipocytes and osteoblasts. While it is appreciated that PPARγ regulates the balance between adipogenesis and osteogenesis, the roles of additional regulators of this process remain controversial. Here, we show that MSCs isolated from mice lacking S-nitrosoglutathione reductase, a denitrosylase that regulates protein S-nitrosylation, exhibited decreased adipogenesis and increased osteoblastogenesis compared with WT MSCs. Consistent with this cellular phenotype, S-nitrosoglutathione reductase–deficient mice were smaller, with reduced fat mass and increased bone formation that was accompanied by elevated bone resorption. WT and S-nitrosoglutathione reductase–deficient MSCs exhibited equivalent PPARγ expression; however, S-nitrosylation of PPARγ was elevated in S-nitrosoglutathione reductase–deficient MSCs, diminishing binding to its downstream target fatty acid–binding protein 4 (FABP4). We further identified Cys 139 of PPARγ as an S-nitrosylation site and demonstrated that S-nitrosylation of PPARγ inhibits its transcriptional activity, suggesting a feedback regulation of PPARγ transcriptional activity by NO-mediated S-nitrosylation. Together, these results reveal that S-nitrosoglutathione reductase–dependent modification of PPARγ alters the balance between adipocyte and osteoblast differentiation and provides checkpoint regulation of the lineage bifurcation of these 2 lineages. Moreover, these findings provide pathophysiological and therapeutic insights regarding MSC participation in adipogenesis and osteogenesis.