Osteoclasts are multinucleated cells which form by fusion of circulating mononuclear hemopoietic precursors. The nature of these precursor cells and the roles bone stromal cells and hormonal factors play in their differentiation to osteoclasts are unknown. We cocultured adherent murine blood monocytes (nonspecific esterase and F4/80 positive; tartrate-resistant acid phosphatase negative) with osteoblastic and fibroblastic stromal cell lines in the presence of 2 x 10(-8) M 1,25-dihydroxyvitamin D3 [1,25-(OH)2D3]. Tartrate-resistant acid phosphatase and calcitonin (CT) receptor-positive osteoclastic cells, which formed numerous resorption pits in vitro, were noted after only 4 days in coculture with UMR106 osteoblast-like cells. Resorption was seen in cocultures to which as few as 100 peripheral blood mononuclear cells had been added. 1,25-(OH)2D3 and contact with live bone stromal cells were absolute requirements for monocyte differentiation into bone-resorbing cells. Both salmon CT (5 IU/ml) and prostaglandin E2 (10(-6) M) significantly inhibited bone resorption. Thus, a significant proportion of the peripheral blood mononuclear cells in the monocyte fraction are capable of differentiating into cells showing the cytochemical and functional characteristics of osteoclasts. The presence of specific hormonal [1,25-(OH)2D3] and bone stromal cell elements is necessary for this process to occur; the resultant resorption can be modulated by known inhibitors of bone resorption, CT and prostaglandin E2.