Although the regulation of osteoblast and adipocyte differentiation from mesenchymal stem cells has been studied for some time, very little is known about what regulates their appearance in discrete regions of the embryo. Here we show that, as in other vertebrates, zebrafish osteoblasts and adipocytes originate in part from cephalic neural crest (CNC) precursors. We investigated the roles that the retinoic acid (RA) and Peroxisome proliferator-activated receptor gamma (Pparg) pathways play in vivo and found that both pathways act on CNC to direct adipocyte differentiation at the expense of osteoblast formation. In addition, we identify two distinct roles for RA in the osteoblast lineage: an early role in blocking the recruitment of osteoblasts and a later role in mature osteoblasts to promote bone matrix synthesis. These findings might help to increase our understanding of skeletal and obesity-related diseases and aid in the development of stem cell-based regenerative therapies.