Exercise is vital for maintaining bone strength and architecture. Follistatin-like 3 (FSTL3), a member of follistatin family, is a mechanosensitive protein upregulated in response to exercise and is involved in regulating musculoskeletal health. Here, we investigated the potential role of FSTL3 in exercise-driven bone remodeling. Exercise-dependent regulation of bone structure and functions was compared in mice with global Fstl3 gene deletion (Fstl3-/-) and their age-matched Fstl3+/+ littermates. Mice were exercised by low-intensity treadmill walking. The mechanical properties and mineralization were determined by μCT, three-point bending test and sequential incorporation of calcein and alizarin complexone. ELISA, Western-blot analysis and qRT-PCR were used to analyze the regulation of FSTL3 and associated molecules in the serum specimens and tissues. Daily exercise significantly increased circulating FSTL3 levels in mice, rats and humans. Compared to age-matched littermates, Fstl3-/- mice exhibited significantly lower fracture tolerance, having greater stiffness, but lower strain at fracture and yield energy. Furthermore, increased levels of circulating FSTL3 in young mice paralleled greater strain at fracture compared to the lower levels of FSTL3 in older mice. More significantly, Fstl3-/- mice exhibited loss of mechanosensitivity and irresponsiveness to exercise-dependent bone formation as compared to their Fstl3+/+ littermates. In addition, FSTL3 gene deletion resulted in loss of exercise-dependent sclerostin regulation in osteocytes and osteoblasts, as compared to Fstl3+/+ osteocytes and osteoblasts, in vivo and in vitro. The data identify FSTL3 as a critical mediator of exercise-dependent bone formation and strengthening and point to its potential role in bone health and in musculoskeletal diseases.