Heat shock protein 90 (HSP90) molecular chaperone is responsible for the stabilization and biological activity of a diverse set of client proteins. We have previously demonstrated that inhibition of HSP90 by 17-Demethoxy-17-allyaminogeldanmycin (17-AAG) not only reverses the glucocorticoid-induced bone loss but also enhances the basal level of bone mass in mice. Here, we investigate the potential mechanism underlying HSP90-associated osteoblast differentiation and bone formation. Knockdown of HSP90β but not HSP90α or inhibition of HSP90 by 17-AAG or NVP-BEP800 negates the protein levels of large tumor suppressor (LATS), the core kinases of Hippo signaling, resulting in the inactivation of LATS and activation of Yes-associated protein (YAP) and transcriptional coactivator with PDZ-binding motif (TAZ), in the enhancement of osteoblastic differentiation. In contrast, genetic ablation of Lats1 in mesenchymal stem cells is sufficient to abolish the HSP90 inhibition-induced osteoblastic differentiation and bone formation. Mechanistically, HSP90β but not HSP90α chaperones and prevents the SMAD specific E3 ubiquitin protein ligase 1 (SMURF1)-mediated and ubiquitination-dependent LATS protein proteasomal degradation, whereas 17-AAG abolishes these effects of HSP90β. Thus, these results uncover the HSP90β chaperoning SMURF1-mediated LATS protein proteasomal degradation and the subsequent YAP/TAZ activation as a hitherto uncharacterized mechanism controlling osteoblastic differentiation and bone formation.