Development of stem and progenitor cells into specialized tissues in multicellular organisms involves a series of cell fate decisions. Cellular differentiation in higher organisms is generally considered irreversible, and the idea of developmental plasticity in postnatal tissues is controversial. Here, we show that inhibition of mitogen-activated protein kinase (MAPK) in a human bone marrow stromal cell-derived myogenic subclone suppresses their myogenic ability and converts them into satellite cell-like precursors that respond to osteogenic stimulation. Clonal analysis of the induced osteogenic response reveals ultrasensitivity and an "all-or-none" behavior, hallmarks of a bistable switch mechanism with stochastic noise. The response demonstrates cellular memory, which is contingent on the accumulation of an intracellular factor and can be erased by factor dilution through cell divisions or inhibition of protein synthesis. The effect of MAPK inhibition also exhibits memory and appears to be controlled by another bistable switch further upstream that determines cell fate. Once the memory associated with osteogenic differentiation is erased, the cells regain their myogenic ability. These results support a model of cell fate decision in which a network of bistable switches controls inducible production of lineage-specific differentiation factors. A competitive balance between these factors determines cell fate. Our work underscores the dynamic nature of cellular differentiation and explains mechanistically the dual properties of stability and plasticity associated with the process.