Bone marrow skeletal stem cells (SSCs) secrete many cytokines including stromal derived factor-1 or CXCL12, which influences cell proliferation, migration, and differentiation. All CXCL12 splice variants are rapidly truncated on their N-terminus by dipeptidyl peptidase 4 (DPP4). This includes the common variant CXCL12 alpha (1-68) releasing a much less studied metabolite CXCL12(3-68). Here, we found that CXCL12(3-68) significantly inhibited SSC osteogenic differentiation and RAW-264.7 cell osteoclastogenic differentiation and induced a senescent phenotype in SSCs. Importantly, pre-incubation of SSCs with CXCL12(3-68) significantly diminished their ability to migrate toward CXCL12(1-68) in transwell migration assays. Using a high-throughput G-protein-coupled receptor (GPCR) screen (GPCRome) and bioluminescent resonance energy transfer molecular interaction assays, we revealed that CXCL12(3-68) acts via the atypical cytokine receptor 3-mediated ß-arrestin recruitment and as a competitive antagonist to CXCR4-mediated signaling. Finally, a reverse phase protein array assay revealed that DPP4-cleaved CXCL12 possesses a different downstream signaling profile from that of intact CXCL12 or controls. The data presented herein provides insights into regulation of CXCL12 signaling. Importantly, it demonstrates that DPP4 proteolysis of CXCL12 generates a metabolite with significantly different and previously overlooked bioactivity that helps explain discrepancies in the literature. This also contributes to an understanding of the molecular mechanisms of osteoporosis and bone fracture repair and could potentially significantly affect the interpretation of experimental outcomes with clinical consequences in other fields where CXCL12 is vital, including cancer biology, immunology, cardiovascular biology, neurobiology, and associated pathologies.