The identity of the cell type responsive to sclerostin, a negative regulator of bone mass, is unknown. Since sclerostin is expressed in vivo by mineral-embedded osteocytes, we tested the hypothesis that sclerostin would regulate the behavior of cells actively involved in mineralization in adult bone, the preosteocyte. Differentiating cultures of human primary osteoblasts exposed to recombinant human sclerostin (rhSCL) for 35 days displayed dose- and time-dependent inhibition of in vitro mineralization, with late cultures being most responsive in terms of mineralization and gene expression. Treatment of advanced (day 35) cultures with rhSCL markedly increased the expression of the preosteocyte marker E11 and decreased the expression of mature markers DMP1 and SOST. Concomitantly, matrix extracellular phosphoglycoprotein (MEPE) expression was increased by rhSCL at both the mRNA and protein levels, whereas PHEX was decreased, implying regulation through the MEPE-ASARM axis. We confirmed that mineralization by human osteoblasts is exquisitely sensitive to the triphosphorylated ASARM-PO4 peptide. Immunostaining revealed that rhSCL increased the endogenous levels of MEPE-ASARM. Importantly, antibody-mediated neutralization of endogenous MEPE-ASARM antagonized the effect of rhSCL on mineralization, as did the PHEX synthetic peptide SPR4. Finally, we found elevated Sost mRNA expression in the long bones of HYP mice, suggesting that sclerostin may drive the increased MEPE-ASARM levels and mineralization defect in this genotype. Our results suggest that sclerostin acts through regulation of the PHEX/MEPE axis at the preosteocyte stage and serves as a master regulator of physiologic bone mineralization, consistent with its localization in vivo and its established role in the inhibition of bone formation.