Autophagy maintains cell function and homeostasis by recycling intracellular components. This process is also required for morphological changes associated with maturation of some cell types. Osteoblasts are bone forming cells some of which become embedded in bone and differentiate into osteocytes. This transformation includes development of long cellular projections and a reduction in endoplasmic reticulum and mitochondria. We examined the role of autophagy in osteoblasts by deleting Atg7 using an Osterix1-Cre transgene, which causes recombination in osteoblast progenitors and their descendants. Mice lacking Atg7 in the entire osteoblast lineage had low bone mass and fractures associated with reduced numbers of osteoclasts and osteoblasts. Suppression of autophagy also reduced the amount of osteocyte cellular projections and led to retention of endoplasmic reticulum and mitochondria in osteocytes. These results demonstrate that autophagy in osteoblasts contributes to skeletal homeostasis and to the morphological changes associated with osteocyte formation.