Eukaryotic cells have signalling pathways from the endoplasmic reticulum (ER) to cytosol and nuclei, to avoid excess accumulation of unfolded proteins in the ER. We previously identified a new type of ER stress transducer, OASIS, a bZIP (basic leucine zipper) transcription factor, which is a member of the CREB/ATF family and has a transmembrane domain. OASIS is processed by regulated intramembrane proteolysis (RIP) in response to ER stress, and is highly expressed in osteoblasts. OASIS(-/-) mice exhibited severe osteopenia, involving a decrease in type I collagen in the bone matrix and a decline in the activity of osteoblasts, which showed abnormally expanded rough ER, containing of a large amount of bone matrix proteins. Here we identify the gene for type 1 collagen, Col1a1, as a target of OASIS, and demonstrate that OASIS activates the transcription of Col1a1 through an unfolded protein response element (UPRE)-like sequence in the osteoblast-specific Col1a1 promoter region. Moreover, expression of OASIS in osteoblasts is induced by BMP2 (bone morphogenetic protein 2), the signalling of which is required for bone formation. Additionally, RIP of OASIS is accelerated by BMP2 signalling, which causes mild ER stress. Our studies show that OASIS is critical for bone formation through the transcription of Col1a1 and the secretion of bone matrix proteins, and they reveal a new mechanism by which ER stress-induced signalling mediates bone formation.