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Abstract Background Despite their efficacy in the treatment of chronic inflammation, the prolonged application of therapeutic glucocorticoids (GCs) is limited by significant systemic side effects including glucocorticoid-induced osteoporosis (GIOP). 11β-Hydroxysteroid dehydrogenase type 1 (11β-HSD1) is a bi-directional enzyme that primarily activates GCs in vivo, regulating tissue-specific exposure to active GC. We aimed to determine the contribution of 11β-HSD1 to GIOP. Methods Wild type (WT) and 11β-HSD1 knockout (KO) mice were treated with corticosterone (100 μg/ml, 0.66% ethanol) or vehicle (0.66% ethanol) in drinking water over 4 weeks (six animals per group). Bone parameters were assessed by micro-CT, sub-micron absorption tomography and serum markers of bone metabolism. Osteoblast and osteoclast gene expression was assessed by quantitative RT-PCR. Results Wild type mice receiving corticosterone developed marked trabecular bone loss with reduced bone volume to tissue volume (BV/TV), trabecular thickness (Tb.Th) and trabecular number (Tb.N). Histomorphometric analysis revealed a dramatic reduction in osteoblast numbers. This was matched by a significant reduction in the serum marker of osteoblast bone formation P1NP and gene expression of the osteoblast markers Alp and Bglap. In contrast, 11β-HSD1 KO mice receiving corticosterone demonstrated almost complete protection from trabecular bone loss, with partial protection from the decrease in osteoblast numbers and markers of bone formation relative to WT counterparts receiving corticosterone. Conclusions This study demonstrates that 11β-HSD1 plays a critical role in GIOP, mediating GC suppression of anabolic bone formation and reduced bone volume secondary to a decrease in osteoblast numbers. This raises the intriguing possibility that therapeutic inhibitors of 11β-HSD1 may be effective in preventing GIOP in patients receiving therapeutic steroids.