The interest in the relationship between fat and bone has increased steadily during recent years. Fat could have a lipotoxic effect on bone cells through the secretion of fatty acids. Palmitate is the most prevalent fatty acid secreted by adipocytes in vitro. Considering that palmitate has shown a high lipotoxic effect in other tissues, here we characterized the lipotoxic effect of palmitate on human osteoblasts (Obs). Initially we tested for changes in palmitoylation in this model. Subsequently we compared the capacity of Obs to differentiate and form bone nodules in the presence of palmitate. From a mechanistic approach, we assessed changes in nuclear activity of β-catenin and runt-related transcription factor 2 (Runx2)/phosphorylated mothers against decapentaplegic (Smad) complexes using Western blotting and confocal microscopy. Quantitative real-time PCR showed negative changes in gene expression of palmitoyltransferase genes. Furthermore, palmitate negatively affected differentiation and bone nodule formation and mineralization by Obs. Although the expression of β-catenin in palmitate-treated cells was not affected, there was a significant reduction in the transcriptional activities of both β-catenin and Runx2. Confocal microscopy showed that whereas Runx2 and Smad-4 and -5 complex formation was increased in bone morphogenetic protein-2-treated cells, palmitate had a negative effect on protein expression and colocalization of these factors. In summary, in this study we identified potential mechanisms of palmitate-induced lipotoxicity, which include changes in palmitoylation, defective mineralization, and significant alterations in the β-catenin and Runx2/Smad signaling pathways. Our evidence facilitates the understanding of the relationship between fat and bone and could allow the development of new potential therapies for osteoporosis in older persons.