BACKGROUND: Fibrous hamartoma is the key pathology of congenital pseudarthrosis of the tibia (CPT), which was shown to have low osteogenicity and high osteoclastogenicity. This study further investigated the mechanism of impaired osteoblastic differentiation of fibrous hamartoma cells. METHODS: Fibroblast-like cells were obtained from enzymatically dissociated fibrous hamartomas of 11 patients with CPT associated with neurofibromatosis type I (NF1). Periosteal cells were also obtained from the distal tibial periosteum of 3 patients without CPT or NF1 as control. The mRNA levels of Wnt ligands and their canonical receptors, such as Lrp5 and beta-catenin, were assayed using reverse transcriptase PCR (RT-PCR). Changes in mRNA expression of osteoblast marker genes by rhBMP2 treatment were assayed using quantitative real time RT-PCR. Changes in mRNA expression of transcription factors specifically involved in osteoblastic differentiation by rhBMP2 treatment was also assayed using quantitative real-time RT-PCR. RESULTS: Wnt1 and Wnt3a mRNA expression was lower in fibrous hamartoma than in tibial periosteal cells, but their canonical receptors did not show significant difference. Response of osteoblastic marker gene expression to rhBMP2 treatment showed patient-to-patient variability. Col1a1 mRNA expression was up-regulated in most fibrous hamartoma tissues, osteocalcin was up-regulated in a small number of patients, and ALP expression was down-regulated in most fibrous hamartoma tissues. Changes in mRNA expression of the transcription factors in response to rhBMP2 also showed factor-to-factor and patient-to-patient variability. Dlx5 was consistently up-regulated by rhBMP2 treatment in all fibrous hamartoma tissues tested. Msx2 expression was down-regulated by rhBMP2 in most cases but by lesser extent than control tissue. Runx2 expression was up-regulated in 8 out of 18 fibrous hamartoma tissues tested. Osterix expression was up-regulated in 2 and down-regulated in 3 fibrous hamartoma tissues. CONCLUSIONS: Congenital pseudarthrosis of the tibia appears to be caused by fibrous hamartoma originating from aberrant growth of Nf1 haploinsufficient periosteal cells, which failed in terminal osteoblastic differentiation and arrested at a certain stage of this process. This pathomechanism of CPT should be targeted in the development of novel therapeutic biologic intervention.