Osteoclast-activating factor (OAF), a powerful stimulator of osteoclastic bone resorption, is released by peripheral blood mononuclear cells on exposure to phytohemagglutinin (PHA) or a specific antigen to which the leukocytes have been previously exposed. Both lymphocytes and monocytes are required in the leukocyte population for OAF release to occur. In this study we examined the relationship between the lymphocyte and monocyte in OAF production. Biological activity, as a result of OAF, was assessed by a bioassay based on the release of previously incorporated 45Ca from fetal rodent long bones in organ culture. We found that an enriched lymphocyte population depleted of monocytes by serial adherence does not release OAF after stimulation with PHA, although the cells are activated as assessed by [3H]thymidine and 3H-amino acid incorporation. When conditioned media harvested from adherent cells which did not contain OAF was added to the enriched lymphocytes, OAF release occurred. Media harvested from adherent cells which were cultured with indomethacin (10 microM), an inhibitor of prostaglandin synthesis, did not permit OAF release by activated lymphocytes. When PGE1 and PGE2 (0.1 microM) were added exogenously to the enriched lymphocyte population, OAF release occurred after stimulation with PHA. These results indicate that, (a) the activated lymphocyte is the cell or origin of OAF, (b) prostaglandins produced by monocytes are necessary for OAF production by activated lymphocytes, and (c) monocyte prostaglandins can influence bone resorption indirectly by regulating OAF production as well as directly by osteoclast activation. The interactions of OAF and prostaglandins at bone resorbing sites may be important in inflammatory and neoplastic diseases associated with bone destruction.