Objective. Erosion of cartilage and bone is a hallmark of rheumatoid arthritis (RA). This study was undertaken to explore the roles of hyperproliferating synovial fibroblasts and macrophages in abnormal osteoclast formation, using the recently described BXD2 mouse model of RA. Methods. Cell distribution in the joints was analyzed by immunohistochemistry, using tartrate-resistant acid phosphatase (TRAP) staining to identify osteoclasts. To identify the defective cells in BXD2 mice, mouse synovial fibroblasts (MSFs) were cultured with bone marrow-derived macrophages. Osteoclast formation was assayed by TRAP staining and bone resorption pit assay, and the cytokine profiles of the MSFs and macrophages were determined by quantitative real-time polymerase chain reaction and enzyme-linked immunosorbent assay. Results. In BXD2 mice, TRAP-positive osteoclasts were found at sites of active bone erosion, in close proximity to hyperproliferating synovial fibroblasts. On coculture, MSFs from BXD2 mice, but not CS7BL/6 mice, produced high levels of RANKL messenger RNA, induced macrophages to form osteoclasts, and actively eroded bone slices, through a mechanism(s) that could be blocked by pretreatment with osteoprotegerin. Although macrophages from BXD2 mice expressed higher basal levels of tumor necrosis factor α (TNFα), interleukin-1β (IL-1β), and IL-6 than those from C57BL/6 mice, abnormal osteoclast formation was not due to enhanced sensitivity of the BXD2 mouse macrophages to RANKL. TNFα, produced by both BXD2 MSFs and BXD2 mouse macrophages, had a strong stimulatory effect on RANKL expression. Conclusion. BXD2 MSFs produce RANKL and induce the development of osteoclasts from macrophages. The enhanced production of RANKL is possibly due to autocrine stimulation, together with paracrine stimulation by factors produced by macrophages. © 2005, American College of Rheumatology.