Polycystin-1 (PC1), encoded by the PKD1 gene that is mutated in the autosomal dominant polycystic kidney disease, regulates a number of processes including bone development. Activity of the transcription factor RunX2, which controls osteoblast differentiation, is reduced in Pkd1 mutant mice but the mechanism governing PC1 activation of RunX2 is unclear. PC1 undergoes regulated cleavage that releases its C-terminal tail (CTT), which translocates to the nucleus to modulate transcriptional pathways involved in proliferation and apoptosis. We find that the cleaved CTT of PC1 (PC1-CTT) stimulates the transcriptional coactivator TAZ (Wwtr1), an essential coactivator of RunX2. PC1-CTT physically interacts with TAZ, stimulating RunX2 transcriptional activity in pre-osteoblast cells in a TAZ-dependent manner. The PC1-CTT increases the interaction between TAZ and RunX2 and enhances the recruitment of the p300 transcriptional co-regulatory protein to the TAZ/RunX2/PC1-CTT complex. Zebrafish injected with morpholinos directed against pkd1 manifest severe bone calcification defects and a curly tail phenotype. Injection of messenger RNA (mRNA) encoding the PC1-CTT into pkd1-morphant fish restores bone mineralization and reduces the severity of the curly tail phenotype. These effects are abolished by co-injection of morpholinos directed against TAZ. Injection of mRNA encoding a dominant-active TAZ construct is sufficient to rescue both the curly tail phenotype and the skeletal defects observed in pkd1-morpholino treated fish. Thus, TAZ constitutes a key mechanistic link through which PC1 mediates its physiological functions.