AbstractTendon stem cells (TSCs) have been proposed to play a major role in the development of tendinopathy, which refers to pathological changes, such as calcification, in affected tendons. Using a human TSC (hTSC) culture model, this study investigated the effects of PGE2, an inflammatory mediator present in injured tendons, on hTSC proliferation and differentiation as well as the molecular mediator for such PGE2‐induced effects. We found that PGE2 treatment of hTSCs decreased cell proliferation and caused osteogenic differentiation of hTSCs in a dose‐dependent manner. Also, PGE2 treatment of hTSCs induced dose‐dependent BMP‐2 production in culture, and moreover, addition of BMP‐2 to hTSC culture decreased cell proliferation and induced hTSC differentiation into osteoblasts. Finally, addition of BMP‐2 antibodies to hTSC culture treated with PGE2 nearly abolished PGE2 effects on both cell proliferation and osteogenic differentiation. Taken together, the findings of this study showed that BMP‐2 mediates PGE2‐induced reduction of proliferation and osteogenic differentiation of hTSCs. We suggest that such a mechanism may be partially responsible for the formation of calcified tissues in tendinopathic tendons seen in clinical settings. © 2011 Orthopaedic Research Society Published by Wiley Periodicals, Inc. J Orthop Res 30:47–52, 2012