Osteoclasts are generated from peripheral blood mononuclear cells (PBMNCs) in the presence of soluble receptor activator of NFkappaB ligand (sRANKL) and macrophage colony-stimulating factor (M-CSF). We show that human osteoclast formation is enhanced when PBMNCs are cultured in the presence of transforming growth factor (TGF)-beta and M-CSF prior to the addition of sRANKL. The effect was only observed in the presence of a nonadherent lymphocyte PBMNC fraction. Osteoclast formation was enhanced to a level equivalent to that induced by TGF-beta when nonadherent PBMNC fraction was removed from the cultures, prior to RANKL treatment. These data suggest that TGF-beta enhances osteoclast formation by abrogating the suppressive effect of the nonadherent PBMNCs, thereby maintaining the osteoclast-forming potential of the osteoclast precursor population. TGF-beta was without effect on proliferation of the adherent PBMNCs and did not stimulate osteoclast size or modify their immunophenotype. The effect was not mediated through prostaglandin synthesis. These results indicate that the microenvironment encountered by the osteoclast precursor prior to RANKL exposure contributes significantly to the regulation of osteoclast formation. Furthermore, the data emphasize that the effect of TGF-beta is determined by the cytokine milieu of the microenvironment and/or the state of activation of the cell being targeted by TGF-beta; thus, the effect of TGF-beta is context-dependent.