Recombinant human (rh) bone morphogenetic protein‐2 (BMP‐2) stimulates osteoblastic differentiation in cells isolated from human periodontal ligament (HPLC), and this action of rhBMP‐2 may be modulated by prostaglandins (PGs), which are local regulatory factors in the bone metabolism. In the present study, we investigated the effect of prostaglandin E₂ (PGE₂) on rhBMP‐2‐stimulated osteoblastic differentiation in cultured HPLC. rhBMP‐2 (500 ng/ml)‐stimulated alkaline phosphatase (ALPase) activity was enhanced by simultaneous treatment with low concentrations (10⁻¹⁰‐10⁻⁸ M) of PGE₂, whereas a high concentration (10⁻⁶ M) of PGE₂ suppressed it. rhBMP‐2 did not induce cyclo‐oxygenase‐2 (COX‐2) mRNA expression or subsequent PGE₂ production, whereas it remarkably suppressed rhIL‐1β‐induced COX‐2 mRNA expression and PGE₂ production. The rhBMP‐2 action on osteoblastic differentiation in HPLC was also enhanced by co‐treatment with 0.25 to 25 ng/ml of rh interleukin‐1β (IL‐1β). The ALPase activity stimulated by simultaneous treatment with rhBMP‐2 and rhIL‐1β was partially inhibited by addition of 10⁻⁶ M of indomethacin, which completely inhibited rhIL‐lβ‐induced PGE₂ production. These results reveal that PGE₂ at different concentrations exerts a biphasic effect on BMP‐2‐stimulated osteoblastic differentiation in HPLC, BMP‐2 inhibits IL‐1β‐induced PGE₂ production through suppressing COX‐2 expression, and the BMP‐2‐stimulated osteoblastic differentiation may be enhanced by the endogenous PGE₂ induced by BMP‐2 and IL‐1β. These suggest that BMP‐2 action on osteoblastic differentiation in HPLC may be modulated by PGE₂ in autocrine and paracrine fashions.