Both adipocytes and osteoblasts share the mesodermal lineage that derives from mesenchymal stem cells. Most studies investigating the mechanisms underlying the regulation of adipogenic or osteoblastogenic development focus on transcriptional pathways; little is known about the epigenetic mechanisms in this process. We thus determined the role of 5-aza-2'-deoxycytidine (5-Aza-dC), an inhibitor of DNA methylation, in the lineage determination between adipogenesis and osteoblastogenesis. Inhibiting DNA methylation in 3T3-L1 preadipocytes by 5-Aza-dC significantly inhibited adipogenesis whereas promoted osteoblastogenesis. This dual effect of 5-Aza-dC was associated with up-regulation of Wnt10a, a key factor determining the fate of the mesenchymal lineage towards osteoblasts. Consistently, IWP-2, an inhibitor of Wnt proteins, was found to prevent the anti-adipogenic effect of 5-Aza-dC in 3T3-L1 preadipocytes and block the osteoblastogenic effect of 5-Aza-dC in ST2 mesenchymal stem cell line. Finally, the Wnt10a 5'-region is enriched with CpG sites, whose methylation levels were markedly reduced by 5-Aza-dC. Thus we conclude that inhibiting DNA methylation by 5-Aza-dC mutual-exclusively regulates the lineage determination of adipogenesis and osteoblastogenesis by demethylating Wnt10a gene and upregulating its expression. Our study defines DNA methylation as a novel mechanism underlying adipocyte and bone cell development.