X-linked hypophosphatemia (XLH) is characterized by hypophosphatemia and impaired mineralization caused by mutations of the PHEX endopeptidase, which leads to the overproduction of the phosphaturic factor FGF23 in osteocytes. The mechanism whereby PHEX mutations increase FGF23 expression and impair mineralization is uncertain. Either an intrinsic osteocyte abnormality or unidentified PHEX substrates could stimulate FGF23 in XLH. Similarly, impaired mineralization in XLH could result solely from hypophosphatemia or from a concomitant Phex-dependent intrinsic osteocyte abnormality. To distinguish between these possibilities, we assessed FGF23 expression and mineralization after reciprocal bone cross-transplantations between wild-type (WT) mice and the Hyp mouse model of XLH. We found that increased FGF23 expression in Hyp bone results from a local effect of PHEX deficiency, since FGF23 was increased in Hyp osteocytes before and after explantation into WT mice, but was not increased in WT osteocytes after explantation into Hyp mice. WT bone explanted into Hyp mice developed rickets and osteomalacia, but Hyp bone explanted into WT mice displayed persistent osteomalacia and abnormalities in the primary spongiosa, indicating that both phosphate and PHEX independently regulate extracellular matrix mineralization. Unexpectedly, we observed a paradoxical suppression of FGF23 in juvenile Hyp bone explanted into adult Hyp mice, indicating the presence of an age-dependent systemic inhibitor of FGF23. Thus, PHEX functions in bone to coordinate bone mineralization and systemic phosphate homeostasis by directly regulating the mineralization process and producing FGF23. In addition, systemic counter-regulatory factors that attenuate the upregulation of FGF23 expression in Hyp mouse osteocytes are present in older mice.