Osteoclasts are cells of monocyte/macrophage origin that erode bone matrix: regulation of their differentiation is central to the understanding of the pathogenesis and treatment of bone diseases such as osteoporosis. Signalling by RANKL (receptor activator of NF-kappaB ligand), also known as Tnfsf11, is essential for the induction of osteoclast differentiation, and it must be strictly regulated to maintain bone homeostasis. But it is not known whether RANKL signalling to the cell interior is linked to any regulatory mechanisms. Here we show that RANKL induces the interferon-beta (IFN-beta) gene in osteoclast precursor cells, and that IFN-beta inhibits the differentiation by interfering with the RANKL-induced expression of c-Fos, an essential transcription factor for the formation of osteoclasts. This IFN-beta gene induction mechanism is distinct from that induced by virus, and is dependent on c-Fos itself. Thus an autoregulatory mechanism operates-the RANKL-induced c-Fos induces its own inhibitor. The importance of this regulatory mechanism for bone homeostasis is emphasized by the observation that mice deficient in IFN-beta signalling exhibit severe osteopenia (loss of bone mass) accompanied by enhanced osteoclastogenesis. Our study places the IFN-beta system in a new context, and may offer a molecular basis for the treatment of bone diseases.