Vitamin D is an important regulator of mineral homeostasis and bone metabolism. 1Alpha-hydroxylation of 25-(OH)D3 to form the bioactive vitamin D hormone, 1alpha,25-(OH)2D3, is classically considered to take place in the kidney. However, 1alpha-hydroxylase has been reported at extrarenal sites. Whether bone is a 1alpha,25-(OH)2D3 synthesizing tissue is not univocal. The aim of this study was to investigate an autocrine/paracrine function for 1alpha,25-(OH)2D3 in bone. We show that 1alpha-hydroxylase is expressed in human osteoblasts, as well as the vitamin D binding protein receptors megalin and cubilin. Functional analyses demonstrate that after incubation with the 1alpha-hydroxylase substrate 25-(OH)D3, the osteoblasts can produce sufficient 1alpha,25-(OH)2D3 to modulate osteoblast activity, resulting in induced alkaline phosphatase (ALP) activity, osteocalcin (OC) and CYP24 mRNA expression, and mineralization. The classical renal regulators of 1alpha-hydroxylase, parathyroid hormone, and ambient calcium do not regulate 1alpha-hydroxylase in osteoblasts. In contrast, interleukin (IL)-1beta strongly induces 1alpha-hydroxylase. Besides the bone-forming cells, we demonstrate 1alpha-hydroxylase activity in the bone resorbing cells, the osteoclasts. This is strongly dependent on osteoclast inducer RANKL. This study showing expression, activity, and functionality of 1alpha-hydroxylase unequivocally demonstrates that vitamin D can act in an auto/paracrine manner in bone.