Histone modifications induced by activated signalling cascades are crucial to cell-lineage decisions. Osteoblast and adipocyte differentiation from common mesenchymal stem cells is under transcriptional control by numerous factors. Although PPAR-γ (peroxisome proliferator activated receptor-γ) has been established as a prime inducer of adipogenesis, cellular signalling factors that determine cell lineage in bone marrow remain generally unknown. Here, we show that the non-canonical Wnt pathway through CaMKII–TAK1–TAB2–NLK transcriptionally represses PPAR-γ transactivation and induces Runx2 expression, promoting osteoblastogenesis in preference to adipogenesis in bone marrow mesenchymal progenitors. Wnt-5a activates NLK (Nemo-like kinase), which in turn phosphorylates a histone methyltransferase, SETDB1 (SET domain bifurcated 1), leading to the formation of a co-repressor complex that inactivates PPAR-γ function through histone H3-K9 methylation. These findings suggest that the non-canonical Wnt signalling pathway suppresses PPAR-γ function through chromatin inactivation triggered by recruitment of a repressing histone methyltransferase, thus leading to an osteoblastic cell lineage from mesenchymal stem cells.