Osteoclast formation from hemopoietic precursors is induced by TRANCE (also called RANKL, ODF, and OPGL), a membrane-bound ligand expressed by bone marrow stromal cells. Because soluble recombinant TRANCE is a suboptimal osteoclastogenic stimulus, and to eliminate the need for such dependence on stromal cells, membrane-bound TRANCE was expressed in hematopoietic precursors using retroviral gene transfer. Four TRANCE-expressing osteoclast cell lines were established that continuously generate large numbers of multinucleated cells and express tartrate-resistant acid phosphatase and calcitonin receptors. The multinuclear cells are long-lived and either fuse continuously with each other and with mononuclear cells to form enormous syncytia, or separate to form daughter multinuclear cells. When formed on bone, but not on plastic, the majority of multinuclear cells develop actin rings on bone, and resorb bone, suggesting that bone matrix may provide additional signals that facilitate osteoclastic functional maturation. Surprisingly, multinuclear cells originate from fusion of proliferating mononuclear cells that strongly express the mature macrophage markers F4/80 and Fc receptor, which are not expressed by osteoclasts. These results indicate that osteoclasts can be derived from F4/80-positive and Fc receptor-positive cells, and that TRANCE induces osteoclastic differentiation partly by suppressing the macrophage phenotype.