Contributing to bone loss with aging is a progressive reduction in osteoblast number and function leading to decreased bone formation. In aging bone, mesenchymal stem cells decrease in number and their differentiation potential into osteoblasts is reduced. Instead, there is a shift towards adipogenic differentiation and increased lipid accumulation in the marrow of osteoporotic bones. Bone marrow adipocytes produce palmitic acid (PA), a saturated fatty acid, which is toxic to osteoblasts in vitro. Vitamin D (1,25(OH)₂D₃) stimulates osteoblastogenesis and has known anti-apoptotic effects on osteoblasts, as such it may protect human primary osteoblasts from PA-induced lipotoxicity. Here, the effects of PA (250 μM) or 1,25(OH)₂D₃ (10⁻⁸ M), alone or in combination, on osteoblast differentiation and mineralization, viability and autophagy were investigated. In PA-treated osteoblasts, 1,25(OH)₂D₃ ameliorated the decrease in the mRNA transcript abundance of representative palmitoylation (ZDHHC1, ZDHHC2 and ZDHHC12) and osteogenic (alkaline phosphatase and osteocalcin) genes. Collectively these gene regulate signaling pathways pertinent to osteoblastogenesis. In osteoblasts treated with PA and 1,25(OH)₂D₃, the capacity to undergo differentiation and mineralization was recovered and cell viability was increased when compared to osteoblasts treated with PA alone. 1,25(OH)₂D₃, irrespective of PA treatment, increased the expression of key osteogenic signaling proteins;​ specifically, SMAD1–3,5, Runx2 and β-catenin. 1,25(OH)₂D₃ also attenuated the high level of impaired autophagy induced by PA and potentiated a shift towards activated, functional autophagy and increased flux through autolysosomes. Altogether, these findings provide in vitro evidence regarding the potential of 1,25(OH)₂D₃ to protect osteoblasts from lipotoxicity by modulating autophagy and facilitating cell differentiation, which may enhance bone formation in an osteoporotic microenvironment with a high level of marrow adipose tissue.