Osteoclast progenitors differentiate into mature osteoclasts in the presence of receptor activator of NF-kappaB (RANK) ligand on stromal or osteoblastic cells and monocyte macrophage colony-stimulating factor (M-CSF). The soluble RANK ligand induces the same differentiation in vitro without stromal cells. Tumor necrosis factor-alpha (TNF-alpha), a potent cytokine involved in the regulation of osteoclast activity, promotes bone resorption via a primary effect on osteoblasts; however, it remains unclear whether TNF-alpha can also directly induce the differentiation of osteoclast progenitors into mature osteoclasts. This study revealed that TNF-alpha directly induced the formation of tartrate-resistant acid phosphatase (TRAP)-positive multinucleated cells (MNCs), which produced resorption pits on bone in vitro in the presence of M-CSF. The bone resorption activity of TNF-alpha-induced MNCs was lower than that of soluble RANK ligand-induced MNCs; however, interleukin-1beta stimulated this activity of TNF-alpha-induced MNCs without an increase in the number of MNCs. In this case, interleukin-1beta did not induce TRAP-positive MNC formation. The osteoclast progenitors expressed TNF receptors, p55 and p75; and the induction of TRAP-positive MNCs by TNF-alpha was inhibited completely by an anti-p55 antibody and partially by an anti-p75 antibody. Our findings presented here are the first to indicate that TNF-alpha is a crucial differentiation factor for osteoclasts. Our results suggest that TNF-alpha and M-CSF play an important role in local osteolysis in chronic inflammatory diseases.